New Zealand’s government has proposed adding house prices to the central bank’s remit as the property market threatens to overheat amid record-low interest rates.
New Zealand Minister of Finance Grant Robertson has written to Reserve Bank of New Zealand Governor Adrian Orr, asking him to consider amending the bank’s remit to include stability in house prices as a factor for monetary policy.
“With an extended period of low interest rates, and some time before housing supply can catch up with demand, now is the time to consider how the Reserve Bank may contribute to a stable housing market,” Robertson said in Wellington yesterday. “I want to be clear I am not proposing any changes to the mandate or the independence of the Reserve Bank.”
Contrary to expectations of a drop in house prices during the COVID-19 pandemic, prices have soared as borrowing costs dropped. That is causing concern that many could be locked out of the housing market.
The Reserve Bank has cut its official cash rate to 0.25 percent and embarked on quantitative easing to drive interest rates lower and stimulate economic growth. Next month it plans to start offering banks cheap loans in another effort to lower borrowing costs.
In a letter to Orr released yesterday, Robertson said that the alternative policy tools the Reserve Bank is using were not envisaged when its remit was first published last year.
“I believe it is right that we consider how these tools might be impacting on the housing market, with particular regard to housing price inflation,” Robertson wrote.
Specifically, he proposed adding house prices to a clause in the remit so that it asks the Reserve Bank’s Monetary Policy Committee to “seek to avoid unnecessary instability in output, interest rates, the exchange rate, and house prices.”
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