Government Writes To RBNZ

The governor of the Reserve Bank of New Zealand Adrian Orr yesterday responded to a letter from the country’s finance minister Grant Robertson who asked the RBNZ head to consider the domestic housing market when coordinating monetary policy. Robertson asked Orr to design policy in such a way so as to “avoid unnecessary instability” in house prices.

RBNZ Responds

In a response issues yesterday by the RBNZ chief, Orr said he would “respond with considered feedback in due course” but was clear in saying: “I can assure you that the MPC, in making its decisions, gives consideration to the potential impact of monetary policy on asset prices, including house prices. These are important transmission channels that affect employment and inflation.”

The New Zealand housing market has seen its prices soar by over 20% in the last 12 months leading to the average house price in Auckland, the most populated city, soaring past $700k for the first time. The government cites the historically low interest rate environment as the main driver of the surge in house prices, hence its communication with the RBNZ.

Lending Curbs To Return

Following the letter from the finance minister, the RBNZ has confirmed that it will reinstate loan-to-value restrictions (which were wound down in May) in a bid to curtail excessive lending which is fuelling the bubble. Orr said: “High-risk loans increase financial vulnerability to households, business and banks. For example, high leverage in the housing sector poses a risk should house prices decline or unemployment rises . . . we're doing so to ensure that banks remain resilient to any future housing market downturn.”

Government Action Needed Also

However, Orr was keen to highlight the need for effective handling from the government’s end also, saying: “As I’ve said publicly on many occasions, monetary and financial regulatory policy alone cannot address this challenge. There are many long-term, structural issues at play.Our monetary policy actions have been, and will continue to be, effective in supporting the economy through the COVID-19 economic shock.” Orrr concluded, saying: “Effective monetary policy is incredibly important for our shared objective of promoting the prosperity and wellbeing of all New Zealanders."

Technical Views


The kiwi continues to rally higher here, following the break of the long term bearish trend line over the summer. Price has now broken above the .6778 level and is now testing the .6974 level. Above here the .7171 level is the next key resistance to watch. Worth keeping an eye on momentum studies, however, as we are seeing bearish divergence on this move, suggesting correction risks.

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