March 13, 2018 / 1:34 AM / in a year

UPDATE 1-RBNZ acting governor calls for greater role of macroprudential policy

(Re-casts, adds detail)

By Charlotte Greenfield

WELLINGTON, March 13 (Reuters) - The Reserve Bank of New Zealand’s (RBNZ) outgoing governor said on Tuesday that the bank’s use of macroprudential tools had successfully insulated the financial sector from the risks of a hot housing market and that its policy toolkit should be expanded.

Governor Grant Spencer said that a planned review of the bank’s use of macroprudential policy in 2018, five years after it was first adopted, should consider the ways in which the success of the tools could be built on.

The RBNZ’s review, which would be conducted with the country’s Treasury, comes alongside a possible shake up of the bank’s monetary policy framework and decision making processes as the government reviews the legislation governing the bank.

“While we stated at the outset in 2013 that LVRs (loan to value restrictions) would be temporary, I believe there is a case to consider maintaining a policy infrastructure of this sort, with policies being adjusted through time between binding and non-binding settings,” Spencer said in a speech to finance industry professionals in Auckland.

The governor, who has served for a six-month interim period, said that the RBNZ’s mortgage lending restrictions had been a useful tool as the bank worked to limit the risks of soaring house prices while it also kept interest rates low to boost tepid consumer price inflation.

Spencer also recommended the introduction of a new committee to make decisions around macroprudential policy, which would sit alongside the bank’s monetary policy committee, with some overlap in members.

New Zealand’s hot housing market, which has seen house prices rise more than 50 percent in the last decade, has caused public outcry and became a key issue in the country’s hotly contested election in September.

The newly appointed Labour-led government has vowed to slow down house price growth by widening taxes on property speculation and curbing foreign buyers. Finance Minister Grant Robertson has said that as a result the RBNZ’s lending restrictions could be removed and that they make it more difficult for first home buyers to get into the market.

The RBNZ slightly eased back some of its LVR restrictions in January after a stark slow-down in house price inflation towards the end of 2017. House prices have since recovered, growing at an annual rate of around 6.5 percent for the past three months.

Current pension fund chief Adrian Orr will take up the helm as the RBNZ’s new governor on March 27.

Reporting by Wayne Cole and Charlotte Greenfield Editing by Eric Meijer and Kim Coghill

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