RBNZ proposes new LVR restrictions: Tightening the noose again - ANZ

Philip Borkin, Senior Economist at ANZ, notes that the RBNZ has proposed a further tightening of its LVR restrictions.

Key Quotes

“Ongoing housing strength and its associated financial stability risks meant the RBNZ felt it needed to act, and tweaking the LVR restrictions is clearly the easiest cab off the rank (the frameworks already exist). But importantly, the RBNZ has signaled that further measures (like debt-to-income ratio restrictions) will continue to be explored.

While this is largely about financial stability concerns, there is a clear overlap with monetary policy, and beyond August (where the RBNZ looks set to cut), this clearly opens the door to additional easing. But the irony of these measures by allowing scope for the OCR to fall further is in some ways akin to taking from Peter to pay Paul.

Nevertheless, in a world of considerable tension between currency strength and housing pressures, and what that means for monetary policy, it is about slowing the flow of credit into housing and driving a wedge between retail borrowing and wholesale rates. We expect this to be an ongoing theme.”