Macroprudential policy is still in its infancy in New Zealand, bank official says
The Reserve Bank of New Zealand’s approach to using macroprudential policy tools has evolved alongside its experience with them, said Christian Hawkesby, RBNZ deputy governor.
Read more: RBNZ points to further rate rises
In a speech published this week, Hawkesby said the bank’s experience since 2013 informed them of the importance of using macroprudential tools in delivering its responsibility for the stability of the financial system as a whole, alongside other prudential settings.
“We have shifted our loan-to-value (LVR) restrictions through time, applying different setting for regions and types of borrowers, and adjusted our settings in response to the changing threats to financial stability” Hawkesby said. “Over time, we have evolved our thinking from considering LVR restrictions on mortgage lending to be a temporary tool for managing ups and downs in the financial cycle to seeing them to be a more permanent device to maintain the resilience of the financial system. We have also come to see that it is important to have a fuller suite of macroprudential tools, which help manage both the risks to the financial system from a fall in house prices and the risks to households being unable to service their debt.”
Following RBNZ’s recent debt serviceability restrictions consultation, the bank now intends to design a framework for operationalising debt-to-income ratio restrictions.
Read next: RBNZ to design debt-to-income restrictions
Hawkesby said RBNZ has reviewed its LVR settings on average every six months over the past decade. He also said macroprudential policy is still in its infancy in New Zealand, compared to the bank’s 30-year history with monetary policy.
“We are still learning and finding our rhythm,” Hawkesby said. “Ensuring that the public understands and supports why our policy tools are being used is an ongoing work in progress, and maintaining our social licence remains of upmost importance.”
