Key Says N.Z. Loan Limits are Medicine Economy Needs to Swallow

New Zealand Prime Minister John Key said limits on low-deposit home loans are something buyers have to tolerate if the nation wants to avoid faster interest-rate increases.

“Like all medicines, I don’t necessarily like having to swallow it either,” Key told TV3’s Firstline. “But what is the best thing overall for the economy?”

From today, banks face restrictions on the amount of new home loans they can make when the deposit is less than 20 percent of a property’s value. The nation’s central bank, concerned a housing bubble is threatening financial stability, imposed the limit because raising interest rates might boost the currency and hurt the economy.

Opponents of the loan limits “are telling you they want you to pay more for your mortgage,” Key said. “I want lower interest rates.”

Reserve Bank Governor Graeme Wheeler said Sept. 12 that the limits lower the bank’s projection for 90-day bank bill yields by 30 basis points, or 0.3 percentage points.

Still, he said the central bank will have to start raising rates next year. It expects yields to rise by 100 basis points by the end of 2014.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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