The use of macroprudential tools to restrain asset price increases has been a hot topic for months as the bank looks for ways to restrain house prices without taking the heat out of the rest of the economy.
Tools that could be introduced include a countercyclical capital buffer, a core funding ratio, sectoral capital requirements, and restrictions on high loan-to-value mortgage lending.
The bank says it is seeking preliminary feedback on the entire package of tools.
LVR restrictions have been particularly contentious. Critics such as Auckland property consultant David Whitburn have said they will make it harder for first-time buyers to enter the property market and provide more opportunities for foreign buyers.
RBNZ deputy governor Grant Spencer said policy makers around the world had been looking for ways to lessen risk in the financial system.
“Macro-prudential tools can have a role to play in this, by reducing the risks associated with excessive credit and asset price growth, or a reliance on unstable funding sources. As a result the Reserve Bank is now consulting on tools it believes could be useful additions to the policy toolkit in New Zealand.”
He said they would not replace the existing regulation of banks already done by the Reserve Bank.
“[They] would be supplementary tools, used from time to time to help manage risks arising from the credit cycle.”
Westpac chief economist Michael Gordon said housing-specific bank capital requirements or LVR restrictions could be useful in combatting the momentum in the housing market. “But there are risks involved with both, especially for LVR limits.”
He said it seemed unlikely that any tools would be implemented before the end of the year.
“Our view its that these tools are not an alternative to traditional interest rate management - they will tend to operate on a longer time frame than monetary policy, and their impact on borrowing costs is likely to be small. Consequently, they are not a substitute for changes in the OCR.”
Submissions can be made until April 10.
You can view the discussion paper here.
