* RBNZ says global and domestic risks have lessened
* Any resurgence in house prices would be a concern - RBNZ
* Paper on debt to income restrictions due in weeks - RBNZ (Updates with central bank comments and background)
By Ana Nicolaci da Costa and Charlotte Greenfield
WELLINGTON, May 31 (Reuters) - The Reserve Bank of New Zealand (RBNZ) said on Wednesday risks at home and abroad to the country’s financial system had receded in recent months, but it remained wary of any rise in house prices or global protectionism.
While the global economic outlook had improved and domestic house price growth slowed, political uncertainty in the world remained high and the rate of housebuilding in New Zealand was insufficient to meet demand, it said in its half-yearly Financial Stability Report.
The central bank said it would soon release a consultation paper proposing the addition of restrictions on high debt to income loans into its macroprudential arsenal to combat the risk of a sharp downturn in house prices. It said it had no immediate plans to use such tools even if they became available.
“The Reserve Bank would not apply it at this stage, given that LVR (loan-to-value ratio) restrictions appear to be mitigating housing risks,” the RBNZ said in its report.
“Should high house price growth return and the proportion of housing lending at high DTI (debt-to-income) ratios remains high, a DTI restriction could be warranted.”
The New Zealand dollar was largely unchanged, inching down to $0.7092 immediately after the release from near three-month highs of $0.7097. The currency was trading around $0.7089 by 0425 GMT.
The central bank reiterated that pockets of the dairy sector were overly-indebted, while global uncertainties remained high.
“I think there’s still a great deal of uncertainty about where the U.S. might go on trade policy,” RBNZ Governor Graeme Wheeler told a news conference. “But it’s not just the U.S. There (are) issues around China and the debt situation. There (are) issues around North Korea, as we know, and around the Middle East, around Syria.”
In March, Wheeler had said U.S. President Donald Trump’s ‘America First’ policy was the greatest source of uncertainty for the trade-dependent economy.
New Zealand’s housing market has grown more than 50 percent in value over the last decade, which has raised concerns about high mortgage debt and the systemic risk that poses if the market should collapse.
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’ DTI ratios.
Wheeler said the consultation paper on DTI restrictions may be released in the next couple of weeks.
If introduced, the restrictions would not necessarily be targeted at investors or contain specific DTI ratio levels, the RBNZ said.
“If we did introduce something at some stage, we would probably have a speed limit aspect to it, just like the LVRs,” Wheeler added.
House price growth has eased in recent months, but there is some concern the impact from LVR restrictions could be temporary and that short supply and record migration could continue to put pressure on New Zealand’s housing market.
Some economists said DTI limits were likely still some way off and may not materialise.
“We don’t think there will be a case for applying DTI limits any time soon,” Michael Gordon, economist at Westpac Bank said.
“The housing market has slowed significantly as mortgage rates have risen from their lows, and our view is that the slowdown will ‘stick’ this time.” (Editing by Diane Craft and Jacqueline Wong)