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RBNZ Governor Wheeler: Scope to Ease If Global Growth Slows

--Wheeler Says New Zealand Has Room on Interest Rate, Balance Sheet, Fiscal
Fronts
     SYDNEY (MNI) - Prospects for continued growth in the New Zealand economy
look promising but if global growth slows, the Reserve Bank of New Zealand has
the scope to ease monetary policy to support the economy, Governor Graeme
Wheeler said Wednesday in what could be his final address as head of the central
bank.
     The speech, titled "Reflections on the Stewardship of the Reserve Bank" was
delivered to the Northern Club in Auckland. Wheeler's five-year term ends
September 26.
     "In the absence of major unanticipated shocks, prospects look promising for
continued robust economic growth in New Zealand over the next two years,"
Wheeler said.
     But "if growth in the global economy slows, we have some scope to buffer
our economy," Wheeler said, referring to room on leeway on both the monetary and
fiscal fronts.
     Wheeler noted the official cash rate at 1.75% is well above the zero, in
contrast to  the negative interest rates supported by several advanced country
central banks. In addition, the RBNZ has room on its balance sheet to support
more stimulus, if needed.
     The "bank has not grossed up its balance sheet by buying domestic assets,"
Wheeler said, adding, "With a budget surplus and low net debt relative to GDP,
there's also flexibility on the fiscal policy side."
     The greatest risk New Zealand faces at this stage relates to inflated
global asset prices and the continuing build up in global debt, he said.
     The main domestic risk would be a sharp decline in net immigration, as this
would slow domestic growth by reducing employment and demand growth, Wheeler
said. The RBNZ's forecasts assume net immigration of 140,000 people over the
next three years which would be a further 3.5% boost in working age population.
Since early 2012, New Zealand has seen 6% growth in working age population due
to net immigration, which has had a positive net demand effect on the economy.
     A second key risk relates to a possible resurgence in house price
inflation, as this would increase the risk of a subsequent correction.
     "Although house price inflation has slowed markedly, a further surge in
house prices can't be ruled out as mortgage rates are low, net migration flows
are strong and large supply and demand imbalances remain in the housing market,"
Wheeler said.
     At the same time, he said it's encouraging that nation-wide annual house
price inflation has fallen from its peak of 21% in August 2015 to 1% currently.
Macro-prudential policy limits on mortgage loan-to-value ratios (LVR)
contributed to this slowing and the RBNZ will ease the limits once there are
signs that financial stability risks have eased and it feels confident that the
removal of limits won't lead to resurgence of risks, he said.
     "On the former measure, the financial risk picture is improving. Banks are
carrying a lower share of high LVR mortgages as a result of the LVR limits
having been in place, and the slowdown in house price inflation is positive -
although prices remain very elevated relative to incomes and rents," Wheeler
said.
     The main risk on the international side, apart from unanticipated major
geo-political developments, lies with the build-up of global debt, Wheeler said.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com
[TOPICS: MMNRB$,M$A$$$,M$N$$$,MT$$$$,MGN$$$]

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