Finance Minister Grant Robertson says “the Reserve Bank is now required to consider housing” when making monetary and financial policy decisions.
Changes have been made to the Bank’s Monetary Policy Committee’s remit requiring it to take into account government policy relating to more sustainable house prices, while working towards its objectives.
This announcement follows a letter Robertson wrote to RBNZ governor Adrian Orr in November suggesting a change to the rules under which it operates, to take heed of the impact of any monetary policy on house prices.
The Reserve Bank already considers risks around residential housing debt when it assesses the nation’s financial stability.
A direction has been issued (under section 68B of the Reserve Bank Act) to the Reserve Bank requiring it to have regard to government policy on housing in relation to its financial policy functions.
Reserve Bank Governor Adrian Orr said the RBNZ welcomed the new direction.
“The Minister’s direction is in tune with our recent advice to the Government in which we detailed the many influences on house prices, including the actions of the Reserve Bank,” Orr said.
The Reserve Bank’s objectives and mandate remain the same, which is to maintain price stability, support full employment and promote a sound and stable financial system.
Orr said the adjustments would increase the focus on understanding and communicating the impact of the Bank’s decisions on house price sustainability.
The Bank will have to take into account the Government’s objective to support more sustainable house prices, including by dampening investor demand for existing housing stock to help improve affordability for first-home buyers.
The announcement was “the first step” as the Government considers broader advice about how to cool the housing market, Robertson said.
“We know the rapid increases we have seen in recent months are not sustainable, which has meant many first-home buyers are struggling to access the market,” he said.
“We’ll be making further announcements in the coming weeks on other policy responses.”
Following the RBNZ’s request that the Government allow it to make use of tools such as debt-to-income ratio limits, the Minister has asked for further advice on how the Bank might implement such tools.
“I have made clear that in principle I would want these to apply only to investors,” Robertson said.
“It’s important that any potential restrictions do not disproportionately affect first-home buyers and low-income borrowers.”
Yesterday it left the official cash rate on hold at a record low of 0.25 per cent and warned monetary policy stimulus would be required for some time yet.
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