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RBNZ Says Cash Rate May Go Higher Unless House Inflation Slows

New Zealand interest rates may rise faster than the central bank currently projects unless house-price inflation is brought under control, Governor Graeme Wheeler said.

The Reserve Bank of New Zealand last month forecast that the official cash rate would start rising from a record-low 2.5 percent next year. It expects the rate will increase to about 4.5 percent by early 2016, Wheeler said in an article on the central bank’s website today.

Wheeler has been reluctant to raise interest rates to curb a housing boom because that may boost the currency and hurt New Zealand’s economic recovery. This week he introduced limits on property lending when the loan-to-valuation ratio exceeds 80 percent to slow the fastest annual increase in house prices since early 2008.

“We are keen to see house-price inflation moderate significantly,” Wheeler said today. “If the loan-to-value speed limit is unable to slow house-price inflation, larger increases in the official cash rate would be required.”

House prices rose 8.5 percent in August from a year earlier, the fastest pace since January 2008, according to Quotable Value New Zealand, a government-owned property research company. In Auckland, home to a third of the nation’s 4.54 million people, prices surged 13 percent.

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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