It says a lot will depend on global efforts to contain the pandemic
New Zealand businesses are still vulnerable despite “substantial fiscal and monetary policy support,” according to the Reserve Bank of New Zealand, which said it will be keeping a close eye on the movement of the economy over the next six months, along with the impact of the government’s recent housing policy changes.
The Reserve Bank recently released its May Financial Stability Report, which noted that although New Zealand had come through the pandemic “better than initially feared,” reduced activity in some sectors and an increase in higher-risk loans meant that there are still vulnerabilities in the financial system.
“Supply chain disruptions and social distancing have reduced activity in affected sectors, and some businesses remain vulnerable,” deputy governor Geoff Bascand said.
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“We will be watching how market conditions respond to the government’s recent policy changes.”
“Successful measures have helped to prevent many business failures and a larger rise in unemployment, which could have stressed the financial system. However, New Zealand’s economic prospects will ultimately depend on the global containment of the pandemic, and on the recovery of trading-partner economies.”
Commenting on the Reserve Bank’s settings, CoreLogic head of research Nick Goodall said they are likely to remain stimulatory for some time.
He said there is also less pressure on the Reserve Bank to respond directly to the movement of the housing market, as it will be closely monitoring the market response to the government’s recent changes to housing policy.
“In terms of the outlook, perhaps the greatest impact of the government’s announced changes is that the Reserve Bank will now have less pressure to step in and help the government with their stated aim to support more sustainable house prices, including by dampening investor demand for existing housing stock,” Goodall said.
“Our previous view that the Reserve Bank is likely to implement restrictions on interest-only lending also looks very unlikely, as they take the opportunity to see how the tax changes will play out in the short term.
“This is especially probable with most investors now requiring a 40% deposit, unless buying a new build.”
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Goodall said that although the economy is getting some stimulus from the Trans-Tasman bubble with more agreements potentially on the way, there is still some way to go before we reach anything approaching ‘normal.’
“The Reserve Bank recently reiterated the continued requirement to stimulate our economy, which likely re-entered a technical recession and continues to suffer from our closed borders,” he said.
“The quarantine-free travel bubble to Australia and rollout of the COVID-19 vaccine shows promise for the future, but our economy has some way to go to get back to normal.
“The Reserve Bank’s monetary policy settings will likely remain stimulatory in the near future.”
