NZ dollar could rise more on rate rise expectations - RBNZ
WELLINGTON May 8 (Reuters) - The New Zealand dollar may appreciate more if investors expect that the country's economy is outperforming, raising speculation that interest rates in the country will rise, the central bank said on Wednesday.
"The extent that interest rates (could be) raised creates the potential risk that New Zealand would be seen to be in a tightening phase, which could put more pressure on the exchange rate," RBNZ Governor Graeme Wheeler told a parliamentary committee studying the bank's just released six-monthly financial stability report.
The New Zealand dollar traded around $0.8450 on Wednesday, not far from a 20-month high of $0.8676 hit last month.
Earlier, the central bank said a strong New Zealand housing market was raising the risks to the country's financial system, as banks has eased lending rules and households were taking on more debt.
The RBNZ said it would now require the country's top four banks to raise the risk weighting for new high value loans, which would see a rise of around 12 percent in the capital needed to back house lending.
Wheeler said the RBNZ expected to agree soon with the government on key policy elements of the tools, which include forcing banks to increase their reserves for certain types of lending, requiring bigger housing deposits, and capital buffers.
He repeated the bank's concerns about the strength in the currency, calling it perhaps significantly overvalued, with any further gains a concern.
External fiscal risks from the euro zone and the United States were seen to have eased but there remained a significant risk of renewed turbulence in offshore funding markets.
The financial stability report did not touch on monetary policy. The RBNZ has held its cash rate at a record low 2.5 percent for the past two years, and said it expects to hold it there through the end of the year as annual inflation remains at a near 13-year low, below the bottom of its 1-3 percent target band.
(Reporting by Gyles Beckford)
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