The Reserve Bank of New Zealand has received new powers to curb excessive growth in credit and asset prices in the country through the use of four macro-prudential tools under an agreement signed with the Finance Ministry.
Finance Minister Bill English said in the budget statement on Thursday that a memorandum of understanding in this regard has been signed with RBNZ Governor Graeme Wheeler.
In a statement, Wheeler said that under the MoU, the Reserve Bank need to consult the Minister of Finance before making any macro-prudential policy decision. However, final policy decisions would be made independently by the Reserve Bank," he said.
The four macro-prudential tools included adjustments to the core funding ratio, a countercyclical capital buffer, adjustments to sectoral capital requirements and quantitative restrictions on the share of high loan-to-value ratio (LVR) loans to the residential property sector.
According to Wheeler, the tools would help to build additional resilience in the financial system during periods of rapid credit growth and rising leverage or abundant liquidity and dampen excessive growth in credit and asset prices.
The tools promote financial stability by helping to build capital buffers and reduce incentives for speculative behavior, which can contribute to boom-bust cycles in credit and asset prices, he added.
For comments and feedback: editorial@rttnews.com