(Updates with comments from NZ Finance Minister)
By Swati Pandey and Charlotte Greenfield
WELLINGTON Nov 30 New Zealand's central bank on
Wednesday warned of significant risks from sky-rocketing house
prices, saying yet more restrictions on mortgage lending might
be needed if property prices continue to accelerate.
The Reserve Bank of New Zealand's (RBNZ) fears of a
debt-fuelled property bubble suggest it is likely done cutting
interest rates, after easing to a record low of 1.75 percent
earlier this month.
The RBNZ already requires investors to make a 40 percent
downpayment on investment properties and is also seeking powers
to impose lending restrictions based on borrowers'
debt-to-income (DTI) multiples.
However, politics could thwart its efforts. Finance Minister
Bill English, who has the final say on whether the RBNZ can add
DTI to its policy toolkit, had concerns it might have unintended
consequences for first-home buyers.
"One of the risks of getting into more detailed regulations
is that...we have to have another intervention to offset the
first," English told reporters on the sidelines in parliament on
Earlier, RBNZ Governor Graeme Wheeler said he would meet
with English in "a couple of weeks" to further discuss the
While the bank did not propose using such measures at
present, DTIs could be warranted if housing market imbalances
were to deteriorate further, Wheeler said.
House price to income ratios in Auckland, New Zealand's
biggest city, were among the highest in the world, the RBNZ
"On housing risks specifically, the RBNZ certainly isn't
claiming victory despite signs that the Auckland market is
cooling and loan-to-value restrictions have improved bank
resilience to price falls," said Philip Borkin, senior economist
"The risks discussed reinforce that the cash rate is likely
on hold for the foreseeable future."
The bank also said high farm debt left the dairy sector
vulnerable to future shocks, despite expecting the average farm
to return to profit this season.
After rising steadily from 2008 to scale record highs in
2013, global dairy prices dropped sharply because of slowing
economic growth in China, New Zealand's top export market, and a
global oversupply of milk product.
Dairy prices have rebounded about 50 percent since July, but
remain well below their highs.
Overall, the banking system had strong capital levels to
withstand shocks, the RBNZ said, but it sounded a cautious note
over the banks' dependence on offshore wholesale funding.
"Banks could become more susceptible to increased funding
costs and reduced access to funding in the event of heightened
financial market volatility."
(Reporting by Swati Pandey and Charlotte Greenfield; Editing by
Wayne Cole and Eric Meijer)