Plus   Neg

New Zealand's Loan-To-Value Restriction Eases Pressure On Exchange Rate

New Zealand's home loan rules introduced last October to curb the threat to financial stability also helped to reduce pressures on the New Zealand dollar exchange rate, Reserve Bank of New Zealand Deputy Governor Grant Spencer said Thursday.

Speaking at the Credit Suisse Asian Investment Conference, Spencer said the dampening effect of the Loan-to-Value Ratio (LVR) on house price inflation is estimated to have lowered consumer price inflation pressures by an amount equivalent to a 25-50 basis point increase in the OCR.

The central bank raised its key official cash rate by a quarter point this month for the first time since July 2010. Spencer said that the monetary policy tightening cycle that has now commenced was motivated by the need to maintain consumer price inflation in the vicinity of 2 percent over the medium term.

When the effects of monetary and macro-prudential policies overlap, they should be coordinated, he observed. "We believe it is essential to retain clear primary objectives for both monetary and macro-prudential policy," Spencer said.

"However, there is an appropriate role for policy coordination in certain circumstances and with certain policy tools," he added.

He said the LVR restrictions will be removed once housing market pressures have moderated.

For comments and feedback contact: editorial@rttnews.com

Economic News

What parts of the world are seeing the best (and worst) economic performances lately? Click here to check out our Econ Scorecard and find out! See up-to-the-moment rankings for the best and worst performers in GDP, unemployment rate, inflation and much more.

Follow RTT