WELLINGTON: The New Zealand government has asked the central bank to consider factoring house prices as part of its monetary policy remit, Finance Minister Grant Robertson said, boosting the local dollar on market bets of less stimulus over the next year.
As policymakers grapple with soaring house prices and the risk of a property bubble, Robertson said the government was reviewing housing policies, and had written to the Reserve Bank of New Zealand (RBNZ) asking what it could do to help slow a property boom.
He proposed taking house prices into account while formulating monetary policy, along with the bank’s existing mandate of inflation and maximum employment.
“I think this move threatens the independence of the bank and brings to question what areas the Reserve Bank needs to focus on now,” said Brad Olsen, senior economist at Wellington-based economic consultancy firm Infometrics.
The New Zealand dollar jumped to $0.6985, its highest since mid-2018, as the government’s move was seen as reinforcing expectations the central bank will resist moving toward negative interest rates next year.
“I am concerned that the recent rapid escalation in house prices, and forecasts for this to continue, are affecting the government’s ability to meet the economic objectives set out in the remit,” the finance minister said in the letter to RBNZ Governor Adrian Orr.
In response, Orr said the bank will consider the suggestion, but added that monetary and financial regulatory policy alone could not address the issues as there were “long-term, structural issues” affecting housing affordability.
OVERHEATED MARKET?
Historically low interest rates, along with other monetary and fiscal stimulus to support a pandemic-hit economy have fired up New Zealand’s housing market, wrong-footing many economists who had expected a slowdown after years of rising prices.
Robertson’s letter comes amid growing pressure to restrain the booming property market – house values have soared around 90% in the past decade – and calls from the opposition party to ‘rein in’ the central bank.
While the RBNZ pumped another NZ$28 billion into the banking system this month, raising concerns this would further inflame house prices, it is also looking at reintroducing mortgage lending curbs that it took off after COVID-19 slowed economic activity.
“With an extended period of low interest rates, and some time before housing supply can catch up with demand, now is the time to consider how the Reserve Bank may contribute to a stable housing market,” Robertson said.
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