More Of The Same

Let the market decide rather than interfering. Every time anyone meddles with the market there are unintended consequences. Lowering the OCR will make imports dearer = inflation. Raising the OCR will make exports even more difficult= recession. Altering LVR’s will hit the poor the hardest and raise rents. Capital Gains Tax will dry up the market and raise house prices. History has taught us that the pendulum swings slowly from one side to the other correcting anomalies slowly but surely.  That’s a much better way to cope with any stresses or strains that may appear from time to time.

Wheeler warns on housing, holds OCR at 2.5%
Paul McBeth | Thursday January 31, 2013 |

Reserve Bank governor Graeme Wheeler singled out rising house prices as a threat to the country’s financial stability and kept the official cash rate at 2.5 percent, as expected, saying the overvalued kiwi dollar was holding consumer prices below the bank’s target band.

“The bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply,” Wheeler says in a statement. It is closely watching house price inflation and household credit growth, which it expects will get a boost from the Canterbury rebuild.

Mr Wheeler is facing increasing pressure to use macro-prudential tools, such as limiting loan-to-value ratios or increasing banks’ capital requirements, to deliver looser monetary conditions and take some pressure off the strong New Zealand dollar.

The governor has been reluctant to accept this lobbying, saying the tools, which are still under construction, are to protect the country’s financial stability, not influence monetary policy.

He is scheduled to deliver a speech to the Canterbury Employers’ Chamber of Commerce in Christchurch tomorrow, entitled Improving New Zealand’s economic growth. On February 20 he will speak to the Employers’ and Manufacturers’ Association on export issues, including the impact of the exchange rate.


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