MNI POLICY: RBNZ Should Tighten, Ex Chairman Grimes Says

A former chairman of the Reserve Bank of New Zealand told MNI the central bank should withdraw from monetary stimulus policies fueling a dangerous asset price bubble.

Arthur Grimes, RBNZ chairman from 2003 to 2013 after previously serving as chief economist, said in an interview that the RBNZ had "gone overboard with schemes which are not necessary."

The RBNZ should end its program of buying NZ government debt through the Large Scale Asset Purchase program, Grimes said, describing the bank's Funding for Lending program for commercial banks as "daft."

The RBNZ has indicated it could move to zero or negative rates next year, cutting from the current record low of 0.25%, but Grimes said that with asset prices surging and the economy back to pre-Covid levels monetary policy was "far easier that it should be."

"There is no shortage of credit in the economy," said Grimes, adding that there was no need for further rate cuts. "The banks are awash with cash, and it certainly doesn't feel like a recession."

In October, Grimes told MNI the surging NZ housing market, whose prices have risen 20% over the last year, was a danger to financial stability.

The RBNZ has moved to re-introduce rules on banks' loan-to-value ratios for housing finance from March next year in a bid to cool the market.

GDP data released this week showed the NZ economy grew 14% in the September quarter and was no longer in recession. The rebound came after an 11% fall in the June quarter.

Grimes said that while growth could slip back in the December quarter and the first quarter of 2021 the NZ economy was strong, with labour shortages, a strong building sector and a tourism sector benefitting from a domestic travel boom.