MNI STATE OF PLAY: RBNZ Mulls Further Housing Market Measures​

The Reserve Bank of New Zealand will look through an economy in a better position than once feared when it meets Wednesday and focus on macroprudential measures to help calm a property market that has risen sharply in recent months.

Officials are likely to leave all the major policy settings unchanged, although they could signal a slowing of government bond purchases in coming months

Interest rates are at a record low interest rate of 0.25%, unchanged now for more than a year, and program to purchase NZD100 billion in NZ Government and semi-Government bonds by June 2022.

PROPERTY ON FIRE

Although the central bank is now technically able to cut rates into negative territory if needed, now is not seen as the time for fear of adding further fuel to a property market which has seen prices rise more than 20% y/y in some parts of the country.

The RBNZ, which also has macroprudential regulatory responsibilities, has sought to control the property market through re-introducing loan-to-value ratios for property investors from this month and could potentially introduce further measures such as regulation of lending standards to cool the market.

Any extension to the bond buying program, the Large Scale Asset Purchase (LSAP) program, is also considered unlikely due to the rebound in the economy, and also because the RBNZ has set itself a ceiling of buying a maximum of 60% of total government debt in circulation.

To date, the bank has purchased around NZD55 billion bonds under the LSAP out of around NZD130 billion of issued debt.

BETTER OUTLOOK

The RBNZ meeting follows the NZ Government's budget last week, in which the Government increased spending on social programs and also significantly upgraded its growth estimates for the economy.

In delivering the budget, Finance Minister Grant Robertson said economic growth was expected to average 3.4% over the next four years, rising from 2.9% this year to 4.4% in 2023 before plateauing. This is significantly higher than previous estimates, which were for 1.5% this year increasing to 3.7% in 2023.

The RBNZ will present its own forecasts on Wednesday, as the meeting coincides with the quarterly Monetary Policy Statement.

On house prices, the Government recently ended significant tax incentives for property investors and is now forecasting that annual house price growth will be only 0.9% next year before edging up to 2.5% in 2025.