Spencer Says RBNZ Could Start Removing Loan Limits Late in 2014

The Reserve Bank of New Zealand could start to remove restrictions on low-deposit mortgage lending late this year, Deputy Governor Grant Spencer said.

The restrictions are achieving their purpose of curbing house-price inflation, “but before removing them we want to be confident that the housing market is responding to interest-rate increases and that immigration pressures are not causing a resurgence of house-price pressures,” Spencer said in a speech in Auckland today. It will take some time to gain this assurance and “at this stage we consider the earliest date for beginning to remove” the loan limits “is likely to be late in the year,” he said.

Under the restrictions introduced on Oct. 1 last year, loans for more than 80 percent of a property’s value must account for no more than 10 percent of a bank’s new lending, down from about 30 percent. New Zealand house-price inflation slowed to 8.4 percent in April from 10 percent in December, data collected by a government-owned property research company showed yesterday.

The RBNZ has raised interest rates twice this year to damp inflation pressures, and indicated more increases are likely. Still, the soaring New Zealand dollar is exerting downward pressure on the prices of imported goods.

Governor Graeme Wheeler said this week that the strength of the currency will play a role in the bank’s assessment of how quickly and far interest rates should rise. He also warned that if the kiwi dollar fails to respond to worsening fundamentals, it may raise the chances of him intervening.

“The extent and timing of interest-rate increases will depend on a number of uncertain variables, in particular the exchange rate and housing market pressures,” Spencer said today, without mentioning the possibility of intervention.

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