RBNZ Rebuffs Robertson on House Prices, Suggests Other Remedies

New Zealand’s central bank said it doesn’t like the government’s suggestion that it add house prices to its monetary policy remit, and instead proposed other measures to tackle the rampant property market.

In a detailed response to Finance Minister Grant Robertson published Friday in Wellington, Governor Adrian Orr said forcing the Reserve Bank to consider house prices when setting interest rates could lead to below-target employment and inflation. He recommended that the bank be required to address the issue via financial policy, and requested it be allowed to add debt-to-income ratios to its macro-prudential toolkit.

“If you wish to strengthen the Reserve Bank’s role in relation to house prices, our recommendation is that this would be best achieved by amending our financial policy remit,” Orr wrote. “Adding house prices to the monetary policy objective would be unique internationally, which could make monetary policy less effective and impact financial market efficiency.”

The RBNZ’s record-low interest rates are fueling New Zealand’s housing boom, prompting Robertson to suggest last month that the central bank take house prices into account when formulating monetary policy. Orr quickly expressed his dislike of the idea, saying the bank already paid heed to the housing market and suggesting the government could make changes to tax policy instead.

In the letter published Friday, Orr requested that the government give consideration to adding restrictions on debt serviceability, including debt-to-income limits, to the RBNZ’s permitted tools in 2021.

He also said that given the complexity of the underlying issues, “there is a need for a single agency or ‘clearing house’ to co-ordinate the government’s response across agencies” to the housing crisis.

“The Reserve Bank welcomes the opportunity to participate within the government’s wider response,” he said.

Source: Read Full Article