They say credit growth won’t need to get anywhere near the levels of the last housing boom before the Reserve Bank starts reaching for macroprudential tools to counter it
ASB chief economist Nick Tuffley said the Reserve Bank would become less tolerant of the house price momentum building in Auckland and Christchurch, which is showing signs of spreading to other parts of the country. He said it posed a risk to both monetary and financial stability.
The macroprudential tools the bank is developing would be a way to ease the property market pressure without dampening other parts of the economy, which are already struggling. Q3 GDP figures were low compared to expectations and economic growth has proved to be weaker than predicted.
Tuffley said that weak growth would make Wheeler reluctant to raise the official cash rate until the end of this year at the earliest.
But before that, he would likely use tools such as core funding ratios, cyclical capital buffers, or loan-to-value restrictions to rein in the housing market. “We’ll hear more this year on what the Reserve Bank is looking at, and deciding what is in its tool kit, but those are the three main ones.”
He said Wheeler would look to the tools as soon as credit growth started to look excessive. “That means trying to delve into what excessive means but it’s likely to be a lower level than we’ve seen in the past.”
Tuffley said that while the last asset price boom resulted in double-digit credit growth, this time around growth would not need to be near double digits before the Reserve Bank would act.
“Some tools are likely to be resorted to more than others and some will be used when nothing else seems to be working.”
