Rate Increases Likely To Be Off Table In Near-Term: RBNZ Spencer

Interest rate hikes in New Zealand are likely to be 'off the table' for the near-term despite rising house prices over the past year, the Reserve Bank of New Zealand's Deputy Governor Grant Spencer said on Monday.

"The bank recognized that low interest rates are contributing to housing demand pressures, and this is a factor the Bank takes into consideration when setting monetary policy. However, the current weakness in export prices, economic activity and CPI inflation means that interest rate increases are likely to be off the table for some time," Spencer said at the Northern Club in Auckland.

The new lending limits for Auckland property investors would cut heightened financial system risk and help moderate the housing market cycle. A sharp fall in house prices has the potential to accentuate weakness in the macro-economy, particularly if banks tighten lending conditions excessively, leading to greater declines in asset markets and larger loan losses for the banks, he added.

Macro-prudential policy can assist in moderating the risks to the financial sector and broader economy associated with Auckland's housing market. The bank's macro-prudential policy is one of the other measures aimed at cutting the imbalances in the Auckland housing market.

Investors are now accounting for 41 percent of Auckland house purchases, up 8 percentage points since late 2013. Half of the new lending to investors is being written at loan-to-value ratios of over 70 percent, he added.

Spencer said the modifications to the bank's loan-to-value policy, announced in May, are targeted specifically at Auckland residential investors. The speed limit has been eased for the rest of the country where housing markets are not subject to the same pressures.

"Tax policy is also an important driver, and we welcome the changes announced in the 2015 Budget, including the two year bright-line test, the proposed non-resident withholding tax and the requirement for tax numbers to be provided by house purchasers," he added.

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