LVR speed limits important

The Reserve Bank of New Zealand (RBNZ) announced yesterday that LVR lending restrictions on banks would remain unchanged for now. This is important for keeping pressure off the OCR - the interplay of this and other macro-prudential tools should always be considered, say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive John Walley says, “Macro-prudential tools are targeted to financial stability, they also lower reliance on interest rates. The OCR is a blunt tool that risks having damaging affects elsewhere in the economy, in particular the tradable sector. The interactive use of macro-prudential tools and interest rates is becoming increasingly common around the world - we encourage the RBNZ to continue work in this area.”

“The RBNZ repeated that in the absence of the LVR restrictions, the OCR would have been 25 – 50 basis points higher and likely closer to 50. Such increases would have added to the upwards pressure on our already “unjustified and unsustainable” exchange rate.”

“This highlights the connection between such macro-prudential tools and monetary policy, allowing central banks to better target imbalances in the economy and particular financial stability risks without having to rely solely on interest rates, which can have wide reaching negative effects.”

“While the RBNZ has indicated the LVR policy has been successful in dampening house price inflation, correcting our housing problem will require a wider response, particularly through fiscal policy and the correction of tax distortions.”

ends

© Scoop Media