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BNZ economists see RBNZ's move on LVR 'speed limits' as the biggest central bank 'experiment' seen here in decades - and a 'gamble'

Posted in Property

The Reserve Bank's expected move to place "speed limits" on high loan to value lending (LVRs) is a gamble and "the biggest central bank experiment seen in New Zealand in decades", according to BNZ's head of research Stephen Toplis.

In the BNZ's latest "Economy Watch", Toplis said the LVR move was a "gamble" designed to slow down the pace of house price inflation in order to reduce the banking sector’s vulnerability to a future house price correction. He also talks about the RBNZ being in "panic mode" about house price inflation. And he argues that the bank is sending conflicting signals and says its credibility is on the line.

The RBNZ gave more details of its plans this week, though it has yet to reveal when the so-called speed limits might be applied.

In the meantime, the Government has been attempting to ease the path of first home buyers into the housing market, having earlier failed in attempts to get first-timers exempted from the RBNZ moves. See here for articles about LVRs.

Curtail

Toplis said RBNZ was hoping to both help curtail the appreciation in house prices by reducing demand, therefore limiting the extent of future price falls and to directly protect bank balance sheets by reducing exposure to the housing market relative to what might be the case otherwise.

He said, however, there were "a couple of flies in the ointment".

He noted that the RBNZ had said the LVR limits could help dampen excessive credit growth - but questioned whether credit growth was indeed excessive in this country at the moment.

"Total borrowing for housing rose 5.4% between June 2013 and June 2012. This was the strongest rate of increase since October 2008 but is miles away from the pace of growth seen in previous housing booms.

"Moreover, there is a  question of what is leading what? If you have strong house price growth then credit growth would be expected to rise even if the volume of activity did not.

"But volume and price growth is well in excess of credit growth at the moment reflecting the fact that much of the activity in the market is being funded by past increases in savings and/or insurance payments (in the case of Christchurch). The credit channel might thus be the wrong one to attack."

Lack of supply

Toplis said BNZ economists were convinced the biggest problem confronting the New Zealand residential property market was the lack of supply accompanied by the rising cost of construction.

"It is a moot point as to whether a reduction in credit availability will reduce these problems. It may even exacerbate them."

Toplis said the RBNZ had often said in the past that rising house prices by themselves were no worry to them, from an inflation perspective, provided that households did not start spending unsustainably off the back of the house price inflation and, in turn, spreading that inflation through the wider economy.

"At this stage there is clear evidence of a pick-up in household demand but not, yet, an accompanying increase in overall retail and consumer price inflation."

Toplis said there was "substantial evidence" the economy would soon be running hot enough to create upward pressure on inflation.

Pressure

"This pressure will be exacerbated if the generally upward trend in the [New Zealand dollar], which we have seen for some time now, dissipates," he said.

"It is these factors that have us forecasting annual CPI inflation heading to the top edge of the RBNZ’s target band in 2015 which will necessitate pre-emptive action by the central bank early in 2014."

The sheer pace of the momentum that is building now might argue for earlier bank action "but you can see why they [RBNZ] are reluctant to move", Toplis said.

Inflation was below the RBNZ's 1% to 3% targeted range and had been for a year, while the central bank's own inflation forecasts had over-estimated the rate of inflation for the past six quarters, suggesting to them at least future "downside risk" to projections.

"As if that’s not enough, the RBNZ is petrified that any increase in interest rates might push the currency higher working against the rebalancing of the economy that New Zealand so badly needs.

Don't worry

"Frankly, we believe the [central] bank should worry less about this than it does. To start with, financial markets are already pricing 170 basis points of tightening over the next two years, with the first hike fully priced by March. Theoretically, the RBNZ would only create further upward pressure on the currency if it was to suggest that the market was underestimating the likely extent of the tightening cycle. This would seem unlikely given that the RBNZ’s own published forecasts are currently miles behind the market’s expectations."

Toplis said the RBNZ was "in panic mode" about the pace of house price appreciation but didn't want to raise interest rates as it saw no immediate inflation problem.  

"The bank has a veritable dilemma and you can see why prudential policy is centre-stage and why the Bank feels inclined to experiment."

But it was "absolutely critical" that the RBNZ clearly identified its objectives, so leaving no confusion over what it was trying to do.

"If it does not do this effectively then its transparency will be called into question as will its credibility. We believe that it is teetering on the brink of doing this now by appearing to confuse its objectives."

Toplis said the RBNZ need to communicate a clear separation between the objectives of prudential and monetary policy.

No confusion

"Prudential policy is exclusively for the purpose of ensuring the integrity of the New Zealand banking system while monetary policy is directed at maintaining inflation within a one to three percent target band. The two must not be confused."

Toplis said the market was being told that the proposed LVR adjustments are a prudential tool only. Therefore success or failure must be judged against the protection that their imposition provides for bank balance sheets, not whether they control generalised inflation.

There were, however, "far too many folk wandering around" believing the main target of the LVR changes is inflation, which in turn is designed specifically to enable the Reserve Bank to maintain interest rates lower than would otherwise be the case.

"The RBNZ has been accused of giving mixed messages on this front. If our interpretation is incorrect and the Bank is instead using LVR’s to target CPI inflation it must come clean and say so and admit that it is using these tools as a monetary policy add on. Otherwise its denial must be vigorous."

Toplis said irrespective of what happened with the LVR moves, official interest rates would need to return to "normal" in reaction to the economic recovery.

Increased spending

"Any suggestion that [they] will not in this environment will lead to increased spending and heightened leverage. The fear of rising interest rates, even if that fear is never realised, is a potent weapon. Any suggestion now, without a corresponding dip in aggregate demand, that interest rates will stay on hold for longer would be like pouring petrol on a fire. It is thus imperative that the Reserve Bank does not engender a significant rally in fixed interest markets when it makes its LVR announcement.

"If all this sounds very confusing, that’s because it is. We’re not strong advocates of the macro-prudential process generally, and the proposed LVR changes specifically, but that’s by-the-by as the changes are upon us whatever we think.

"What matters now is that the Reserve Bank provides absolute clarity as to what it is doing and why it is doing it.

"It will tell you that it already is but the number of questions we are getting from both offshore and onshore is testament to the fact that its current communications strategy is less than optimal.

"Moreover, with all the hype over LVRs and the current intense concentration on regulatory matters at the Bank, it is equally imperative that the importance of monetary policy and orthodox responses to economic cycles does not play second fiddle," Toplis said.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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56 Comments

For a change we have a RBNZ

For a change we have a RBNZ and a governor that is thinking and doing the right thing. Not just pushed around like a ragged doll by our foreign owned banks and puppet economists. For a change we do not get this nonsense harping on about how it is New Zealanders who  are debt addicts and it is the fault of the New Zealand debt addicts and our banks are innocent debt pushing bystanders.
Focus on the drug pushers and you start to solve the addiction problems. Great job RBNZ.

Interestingly, a couple of

Interestingly, a couple of days ago you were talking about greedy first-home buyers distorting the real estate market, when they should be renting instead (presumably in your houses), so as to free up capital for entrepreneurial activities.
 
Quote: "steven, it is not property investors driving the increase in house prices. It is the emotive buying of your homeowner" and "[t]he demand [for houses] is from self serving homeowners that want to satisfy their self centered self gratification".
 
So whose fault is it? The pushers, or the users, using your War on Drugs analogy?

Inconsistent and contrary:

Inconsistent and contrary: all over the place: in response to Zoltuger, Zeds said  "home owners are the greedy ones and should be land taxed for wanting to live in their own homes"
http://www.interest.co.nz/opinion/65850/alistair-helm-questions-whether-announced-political-policies-address-housing-market-ar#comment-747298

His maths dont seem to add up

His maths dont seem to add up either.  I means whats the difference between a first time owner investing in a business instead of a house or a landlord investing in a business instaed of another house, the NET appears to be zero.  I suspect its more long the lines of he wants others to take on riskier investments while he makes nice profits for little risk, ie self-centred and self-serving vested interest.
regards
 

steven, hopefully to expand

steven, hopefully to expand your caveman and peak oil (twigs) limits, I will try and explain, property investors invest in property because that is the business that they want and choose to do. It suits a certain type of personality and is not always suitable for everyone. If you ask me to invest in a goods and services type business, I would not because I do not have  a clue with building a goods or services type business, never had an interest and never will. Property investors like any business identifies a opportunity for a saleable product and in this case providing rental accomodation.
Homeowners are different, they have not formulated a business plan. They are just too busy satisfying their self gratification. Get a bigger house, get a bigger toilet, get a bigger kitchen so that my friends can envy me. Therefore this is the group that needs to be discouraged from investing with the primary objective of fulfilling a need to feel better than my neighbours and my friends.

I fail to see why ppl such as

I fail to see why ppl such as yourself who it seems cant handle a real business should be handed a monopoly and let others take the risks. Plus its a freedom thing, if ppl want a house well its their money.  BTW I own my own hose but im not into the "Get a bigger house, get a bigger toilet, get a bigger kitchen so that my friends can envy me"
Usually I find the ppl who spout this are the very ones who think and act like it.
regards

steven, that is a illogical

steven, that is a illogical emotional response. Property investment is not a monopoly because the entry barriers are low therefore competition is rife. This is a tough business and requires a lot of patience to make alot of money. This is not a quick money making scheme. Sure you can have a lot of amateurs dabbling but many who dabble get burned. Like any business it requires dedication and well thought out strategies and a huge amount of patience measured in 7 to 10 year cycles.
There is a serious amount of commentary targetting Property Investors but as I have already indicated there are only 250k property investors versus at least a million home owners. It is the homeowner who are the price drivers and the market makers driven to fill emotional needs including yourself. That need for your own special place is itself an addiction that is causing loss of equity in the productive sector. Therefore any land tax proposal must target the largest group of property owners ie the million plus property owners that call their investmnt their home. It is their behaviour that needs to change in order to get more productive investment that add jobs rather than to meet your precious personal need of a personal space for a bbq.

Jetliner, obviously this

Jetliner, obviously this issue is not a one dimensional issue but a multidimensional problem. To keep it simple for one dimensional thinkers, if you want to target property investors then you have to target the homeowner as the largest property investor group to change behaviour. Homeowners invest for self gratification and therefore constitute emotional buying behaviour.
You also have to target the source of the drugs which are the drug pushes, in this scenario of course our banks. The banks fuel the fire by feeding this emotional trigger and therefore with the resulting higher and higher prices. Speculators ride the wave or in forex trading terms scalpers. They are not price drivers or market makers. True property investors buy on yield or buy for potential yield, ie add more rooms, subdivide and add more houses but they do not sell and therefore are not price drivers.

I don't personally have a

I don't personally have a dimensionality problem ;)
 
I was just interested in understanding how you reconciled these two seemingly-polarised and strongly-expressed views...
 
Actually, I tend to agree with part of what you've argued for (minus your forceful disparagement of owner-occupiership). Warm-fuzzies mortgage advertising by the major banks overlaying the reality of cold hard major debt makes my skin crawl, sometimes. After all, check out the etymology of 'mortgage' (http://www.etymonline.com/index.php?term=mortgage). Not exactly cheerful!

"speed limits" on high loan

"speed limits" on high loan to value lending (LVRs) is a gamble and "the biggest central bank experiment seen in New Zealand in decades",
Really interesting comment from the BNZ. You could argue that the current arrangements are 'a gamble' and 'an experiment'. Yet we keep on pretending that what happens now is somehow correct and that any deviation or change is somehow tainted. Words like 'gamble' and 'experiment' are of course used to taint  any deviation from the current thinking.
I really like the idea of house price inflation vs flat screen TV inflation or milk price inflation.
It is as if we no longer know what we are measuring or why. The RB has allowed the pretence that they somehow can influence the weather- food price inflation or how many TV plants are built in Korea.
Inflation is really to do with our money . Inflation is a way of looking out our money to see if it is maintaining its purchasing power. Ie a measure of money as a store of value. Inflation measures a rate of change in that  store of value. We use the price of stuff to do this.
Of course with China the price of stuff plumetted so the RB pretended that it was the RB that did this. Rather than Chinese workers.
Meanwhile domestic inflation has been allowed to go on unchecked, with the store of value of our NZD being allowed to be dramatically eroded year on year. It has been eroded because the RB does not see its role in balancing the money supply with growth in the economy.
So we have ended up with two much money chasing stuff- in our case houses. By privatising the creation of money to people who make money of the creation of money via debt.
Ceap debt did two major things it allowed vast amounts of NZD to be created unchecked and it of course raised asset prices. brilliant. But not so brilliant if you are looking for a competitive economy.

Another slanted banking

Another slanted banking industry press release.
 
By far the biggest gamble that RBNZ has implemented is the OBR scheme - unique in the world but guaranteeing the NZ depositors will pick up the pieces if the Australian banks use NZ banking monies to bail out mismanagement in either country.     The RBNZ academics have no skin in the game.    

Yes, I agree and the risks

Yes, I agree and the risks BNZ impose upon unsecured depositor's capital needs to be clearly stated in a preface to anything BNZ employees wish to present in their criticisms of the RBNZ and general NZ banking practices.  Read more
 
Moody's downgraded the credit ratings of New Zealand's big four banks by one notch to Aa3 from Aa2 in 2011. Yu noted that a key factor in the downgrades was dependence on wholesale funding. Moody's estimates the big four, on average, source 37% of their funding from wholesale - both short-term and long-term - sources, with this including money sourced from their Australian parents.
 
"In all our research we continue to highlight that the New Zealand banks' level of wholesale funding is a key constraint on the rating," said Yu. "They (the banks) have improved their position (since 2011), but even with this improvement, the banks' levels of wholesale funding is still a key concern."
 
In January Moody's highlighted that, at more than 140%, the New Zealand banking sector has the highest loan-to-deposit ratio out of 13 Asia-Pacific countries. Of the big four banks, S&P figures as of December 31, put ANZ's at 135.9%, ASB's at 136.6%, BNZ's at 162%, and Westpac's at 147.4%. Kiwibank's was 109.9%
 
Meanwhile, Yu said the Reserve Bank's potential use of macro-prudential tools, and possible move to increase the amount of capital the big four banks must set aside to cover potential losses from high loan to valuation ratio home loans, in attempts to slow credit growth, were both positive initiatives for the banking sector.
 
And let's be clear - the hedged and thus collateralised foreign wholesale borrowings are by design exempt from receivership claims, thus placing the risks of insolvency directly upon depositors, shareholders and other unsecured lenders.
 

The OBR  isnt a gamble it

The OBR  isnt a gamble it reduces the gambling effect of others.
Depositors have always been at risk, with the OBR thats now not necesairly the tax payers via moral hazard.
The illogic around this is simply stunning.
Skin in the game? why should I as a tax payer have skin in the game? its not me profiting but the depositor, ie earning interest.
regards
 

NZ is unique in the world in

NZ is unique in the world in not having deposit insurance.    No one said the tax payer had to have skin in the game - just that the RBNZ (highly paid servants of the public) have no skin in the game. They won't be the ones who suffer when their OBR is invoked.  Many other countries have solutions which do not involve tax payer monies.   The FDIC in the States has covered hundreds of banks and savings societies which have failed - with no interruption of banking service to the customers and at no cost to the taxpayer while insuring the deposits of depositors - even at the heighth of the GFC.
 
Perhaps the stunning aspect is why you and the RBNZ see a moral hazard when no other country taking this approach.    Australia (who have control of our four main banks) see no moral hazard in insuring depositors accounts up to $250,000 Aus in each of their banks - allowing these depositors to have such insured deposits in all the banks.

BNZ are correct , the

BNZ are correct , the Property Market is the closest thing to a perfect market in New Zealand , so why not  let the market do whats its meant to do?
The RBNZ  are either bluffing or powerless to sort this out, and it begs the question:  
Why interfere at all ?

  • Its a meeting of willing buyers and willing sellers
  • There is freedom of choice
  • Buyers and sellers can transact or walk away at any price they choose
  • The market is not rigged
  • Its almost 70% in a public auction format so there is open and transparent process
  • All information is available to buyers and sellers regarding comparative and historical  prices , sale  conditions , LIM reports , etc , etc
  • There are no barriers to entry ( none whatsoever)
  • There are no property transaction taxes distorting the market. 

I'll pick the ' brains trust " at the RBNZ actually know all this and the LTVR is actually a bluff , and it wont work, simply because everything is stacked against them as listed below :

  • Auckland Council dumb policies re growth , restricting land supply and rortiuos fees  , have got us here
  • Thousands of new Migrants arriving every WEEK , and they hvae to live somewhere
  • A migration policy openly targetting people with money or skills and they have to live somewhere
  • First time buyers who have to live somewhere
  • Banks awash with money which they have to lend somewhere
  • The lowest borrowing costs in history
  • The prudential rules set by the RBNZ favouring property as secured debt
  • Asset, commodity , equity and Bond prices worldwide increasing on the back of QE and cheap borrowing costs

On the last point , on  the back of QE and artifically low rates , asset  prices are on the rise everywhere , the NZX 50 Index has increased around 30% in the past year   so why panic when the Auckland residential property market goes up 12% off a low  recessionary base?  
 

On the last point , on  the

On the last point , on  the back of QE and artifically low rates , asset  prices are on the rise everywhere , the NZX 50 Index has increased around 30% in the past year
 
Yep, another bubble waiting to be deflated - but as someone pointed out to you, it's usually blown up without gearing by NZ participants - I admit US recipients of QE credits are certainly geared up in the "e-mini" which in turn drives our stock market. However, house price purchasers are geared with depositor's or foreign wholesale funding and if the bubble gets pricked the whole weight of any loss falls upon those NZ unsecured lenders who have no idea they are at risk and have yet to be publicly warned of OBR.

Why interfere at all? Because

Why interfere at all?
Because a market by nature is an artificial construct.  A framework of rules, laws and practices that does not exist in a vaccum.  If any market creates stress on wider parts of the economy in such as way as to create risk there is a case that something should be done to rebalance that framework to reduce said risk.

Because tax payers are the

Because tax payers are the ambulance at the bottom of the cliff thats why.  Now if indeed there was no recourse to the tax payer, then yes.  The OBR might achieve that...
regards
 

dp

dp

Obviously a cheap and endless

Obviously a cheap and endless supply of dollars via the main dealers will serve debt junkies well Zanyzane...but any attempts to choke that supply will drive all desperate addicts to the financial tinny houses up the road...and when things really start tightening we will see more street corner dealers in local neighbourhoods setting up shop to ease the financial pain of indebted desperados. And as a matter of course...when things get really ugly and start to unravel....we will find these very homeless debt junkies in a gutter somewhere with an empty wallet still stuck in their pocket !!

That's fine, as long as core

That's fine, as long as core bank stability is maintained then a few junkies in the drain does not affect the general economy. But if any one of these major banks fail then likely it would have to be a major tax payer bailout. Therefore we need to keep these banks a lot more conservative and prudent in their lending. A few high risk shark lenders go down the drain, not a bad thing. Tough.

Mr Toplis says some odd

Mr Toplis says some odd things to my ear.
 
He claims the Reserve bank is petrified, such a state means to be frozen into *inaction*, but this at a time when the Reserve bank is in the very midst of action.
 
He suggests the Reserve bank is panicking but offers no evidence for such a claim aside from their desire to act.  Apparently action and panic are the very same thing.
 
He acknowledges such action is unprecedented in New Zealand and gives no leeway for the uncertainly this must create but rather lays the whole blame on the communication skills of the Reserve bank.
 
His flies in the ointment (borrowing not yet out of control plus there are other causes) seem closer to wrinkles that flies.  To call them flies suggests they can spoil the whole.  Good to keep in mind but not persuasive enough to drop every attempt at action.  Given the scale of financial disaster that inaction gave birth to just a few years ago it seems optimistic in the extreme that the Reserve bank should try nothing yet again.
 
Lastly, I hardly see any basis for the idea Reserve bank credibility is on the line.  By his reasoning evolutionary process would be impossible as every action must appear complete and perfect the first time out.

Is anyone really surprised by

Is anyone really surprised by the self-interested commentary from some of the banks?
The dilemma of hyped exchange rates and asset bubbles remains rampant in NZ; current policy has failed to deal with this debt addiction.
Of its self that would not be a problem but financial stability and hyped currency impacts the non-addicted and the productive. 
That is a problem for us all.
www.johnwalley.co.nz

Is anyone really surprised by

Is anyone really surprised by the self-interested commentary from some of the banks?
The dilemma of hyped exchange rates and asset bubbles remains rampant in NZ; current policy has failed to deal with this debt addiction.
Of its self that would not be a problem but financial stability and hyped currency impacts the non-addicted and the productive. 
That is a problem for us all.
www.johnwalley.co.nz

... ummmm , John , anyone who

... ummmm , John , anyone who runs a business extols the virtues of their products .. ... it's only natural to indulge in " self-interested commentary " ...
 
Don't manufacturers do this ...... hmmmmmm ?

RBNZ should stop playing

RBNZ should stop playing silly buggers and just put interest rates up thats whats needed and signal they will keep putting rates if  the housing market doesn't show signs of slowing.Standard central bank policy.

You are right Colin. Toplis

You are right Colin. Toplis is also right (& too polite) about the RB's petrification but wrong about supply being the culprit - the NZ property market is a tax-free casino for the world. They (RB) should just hike and hike rates; it's governments job to sort out the market and its greasy participants. But don't hold yer breath.
Regards, Ergophobia   

uh no....businesses are

uh no....businesses are struggling...using a sledge hammer will do a lot more damage and send us into recession/depression.
regards

And what makes you think that

And what makes you think that the solution to "businesses are struggling"  is to keep interest rates low.
Low interest rates ( extreme low interest rates )  are destroying Savers and encouraging credit growth.
Do u think businesses and individuals are going to "wisely" pay debt down.??
OR .. is it possible the opposite might happen.?
If house prices double from here... will u say uh no..  keep interest rates low.
If consumers go on another  credit induced spending spree... and our current acct blows out..will u say uh no...  keep interest rates low.
the biggest experiment of  all by central Banks...  and a failed experiment in my view...has been this whole inflation targeting framework policy. ( was not NZ one of the pioneers of this..? )...  where the CPI is inflation and as long as it is in "target"....  who cares how much credit gets created.... who cares how much asset prices rise..who cares if the real "cost of living skyrockets"..
in a Global World, where Capital moves freely,   the inflation targeting framework is a broken paradigm anyway.
 
 

Savers? Who needs savers?

Savers? Who needs savers? Plenty of cheap foreign money available. Why do we bother paying local savers 4% when we can pay foreign savers 2% and less?
It is savers that do not invest in the productive sector. It is savers that do not support the NZX. If we truly want to put money aside for retirement then lets have compulsory superannuation. These savers calling for high interest rates just damage the local economy.

Not sure why u malign

Not sure why u malign savers...    Low interest rates are not some kind of magical economic cure... In fact artificially low interest rates are highly distortionary and can be destructive... in my view. ( ie excessive credit growth leading to economic growth.... in which the western world seems to have reached the limit )
Maybe I'm old school economics...  but...  I've always thought that interest rates were supposed to balance savings vs investment.... thereby adjusting the amount of consumption and investment fueling the economy.
( in an economic sense...saving is deferred consumption . borrowing is the opposite )
It is the job of the interest rate to distribute production into spending for consumption and investment, so that consumption plus investment use up all the goods produced, with no overproduction or underproduction.
The interest rate is just like a carburetor in a car , which adjusts the amount of air (consumption) and gasoline (investment)  going into the engine.
In the Global world how else do you balance consumption vs investment.
In my view , with contrived low interest rates we end up with over capacity , extreme asset prices and over consumption, malinvestment etc...    and that in the end it is  damaging to an economy.
In todays world of Central Banks manipulating interest rates...everything is skewed.
So..when you say who needs savers.... I disagree.   the end result of your world is another GFC and another crisis... and the incessent need for never ending growth.
 Low interest rates  is at best a short term solution with longer term problems.. and 
 
 

While the world continues

While the world continues zirp and qe,  NZ will fall into line with low interest rates for as long as the USA , UK, Eurozone, Aus does. 
It may not be ideal, but without Zirp atm, you will get instant recession, deflation, unemployment, share market crash, etc etc 

Well put Roelof. But these

Well put Roelof. But these low rates: low dollar lobbyists are beyond logic, they are addicted to debt and probably nothing short of ruin for us all will change things now. And our idiot Politicians just want to debase the currency (to favour comodity export monopolies) and flood the country with immigrants, to have "growth".
Regards, Ergophobia 

Ergophobia and Roelof seem 

Ergophobia and Roelof seem  to think that the high dollar is helpful to our export sector and that the average mum and dad should have less to spend on thir kids because they have this selfish desire to see their meagre savings earn a little more. Perhaps thery should consider working for that extra income like everyone else and stop sitting on their fat BS and earning a lazy interest on their savings.

Well being a saver, both lazy

Well being a saver, both lazy and a dad, I've already earnt my savings bonehead.
Enjoy working do you?

Zany zany - to retain

Zany zany - to retain credibility, could you please explain how we can get away with paying foreign savers 2% as our cost of funds - you may have invented something, one way or the other.

Grant A, you need to get out

Grant A, you need to get out more and experience life cause your range of opinions and remarks seem to be severely limited to asking people to justify what you clearly cannot correctly explain yourself. 

Zanyzane - you seriously want

Zanyzane - you seriously want me to explain to you that NZ bank cant raise funds from an offshore investors at 2% ? There won't be one other person uninformed enough on here I suspect that thinks that they can, so it's really up to you to explain how they can
The fact is, they can not - you have the explain as to how, otherwise it's just a lame statement made by the uninformed or naive - not sure what you are frankly. Please explain 

Grant A, clearly a bank

Grant A, clearly a bank employee, you sound more and more like a bank teller evrytime you opine.

No, but obvious aware - but

No, but obvious aware - but even if that was true, why does does it make any difference, why  does it preclude me from getting a sensible reply ? -  because two or three of you talk through a hole in your head, have no facts, and respond but criticing people who ask questions because you can't answer them
"Facts are the enemy of truth" sure talks about three or so of you - the bulk of people on here contribute and debate, use logic, and learn something, as indeed I do too - but it will never be from you Zanyzane unless you can actually start to communicate properly. 

You the everything expert on

You the everything expert on banks Grant.  You explian how you get away with it.

A nonesensical statement from

A nonesensical statement from you KH tha doesn't surprise me but please explain it to me or perhaps someone else can.
my point here is that if people make statements on here they should be prepared to explain tha view otherwise it's a pointless posting like you last one.

Same old Grant  Demand

Same old Grant  Demand explantions but only on your terms.   You don't even accept excessive bank profits might have something to do with your margins.
Just answer the question mr bank expert.    Or is the answer a little awkward.  ? 

A less than intellegent

A less than intellegent response KH - what terms ? And in trying to understand why someone thinks that, I have asked that other person on here previosuly who makes similar statements, and likewise got no answer that made any sense...... please  explain what is excessive about bank profits - people who makes statements, and you just made one again, but aren't prepared to explain when questioned about them (in fact attack people on here for asking a question....daring to suggest you might be wrong), clearly have no intellegent answer.  Don't bother answering me KH, it won't make sense to me..

Explained before Grant.

Explained before Grant. Decisively. You ducked and changed the subject. Haha. 

How about you start

How about you start justifying your point of view instead of attacking the messenger?
regards

To start with I dont belive

To start with I dont belive the codswollops its "savers", but the actually the "saved", ie the OAPs...these are the ones I hear whinning about lack of income on their $s.  Businesses need credit, the cost of credit is an overhead.  In times of hard going lower interest rates help businesses stay afloat and retain jobs.
House prices are already in a x2 bubble, go to x4? hardly something thats going to not implode. Im not even aware are anywhere that has gone past 9 to 1 and stayed there let alone 12 to 1....fat chance.
If, IF....if....
Inflation is actually at record low levels, simple if it keeps going down we'll see deflation and a depression the size of the one in the 1930s.
"paying down debt" well I am as fast as I can go....others obviosly are not....their problem.
"Real cost of living", yeah right....supply and demand, too many ppl chasing to few oil barrels...half gone no more increase in rate of extraction...
Interesting viewpoint, disagree with pretty much all of it.
In the future however yes targetting inflation is pointless, peak oil see to that.  We are seeing this now of course....the symptoms are there.
regards
 
 
 
 

In times of hard going lower

In times of hard going lower interest rates help businesses stay afloat and retain jobs.
 
What type of business are you talking about? All through my professional career in the City of London it was apparent that those companies with outstanding term debt were hurt the most when interest rates fell. And proprietary bond traders financing position with falling short term rates were raking in the bonuses as those same term bond prices rose.
 
Unfortunately, the businesses had mark to market losses on the outstanding debt and an immediate need to buy that debt in and re-fund at a lower rate to remain competitive with new entrants either locally or offshore.
 
You can only be referring to cottage industry business whereby the owner draws down funding needs by over mortgaging his residential property.

Yes, little ones, the real

Yes, little ones, the real businesses not the financial smoke and mirrors brigade or the mega corps that strong armed Govns and the markets to get their way. 
This is where I see there is a dis-connect between a goods producer and a financial wizz bang "bank". The former makes things, the latter has now become a parasite. ie does more harm than good in the last 30 or so years. 
Yes sure those locked into higher funding costs would be un-competitive with those borrowing newly in a tighter market...but that would tend to be a short term example as over time thats worked off. Plus well if the business took the wrong decision to borrow at that high a rate, just whos fault is that? I would have assumed that they did so knowing they could profit...maybe believing they had a monopolistic position.
regards
 
 
 

" Businesses need credit, the

" Businesses need credit, the cost of credit is an overhead.  In times of hard going lower interest rates help businesses stay afloat and retain jobs."
Ok...  Why single out interest rates..??    Why not reduce energy costs for businesses.??  Why not reduce rent for businesses..?
Govt. can easily put in price controls to limit costs to businesses..??    Common sense tells us that if we brought in these price controls there would be all sorts of distortions and unintended consequences.
Interest rates are no differnent..   It is just that the consequences are longer term and maybe not so clearly visible. ( one of the more obvious consequences  is asset price bubbles)...Keep in mind that the way central Banks keep interest rates down is by increasing the supply of money at whatever the target rate is . ie. we can get money supply growth and credit growth
Steven... check this site out..      House prices can go whereever they want...  The average wage is not some kind of glass ceiling that limits the price...  
http://www.numbeo.com/property-investment/rankings_current.jsp
Now u have seen that there are many places where house prices are higher than 9 to 1....
U might say that it is because those places are really..really low wage rate places... but alot of the places that are 10 or 11 to 1 are 1st world cities..... Maybe Auckland will become one of those..??

The solution is to not allow

The solution is to not allow the banks to borrow cheap credit from overseas. If they had to borrow money from savers in New Zealand, NZ savers would be paid a higher return, there would be more saving, and there would be less lending for speculative risk taking.

JT, I think you are close to

JT,
I think you are close to the right answer.
Toplis says:
"But volume and price growth is well in excess of credit growth at the moment reflecting the fact that much of the activity in the market is being funded by past increases in savings and/or insurance payments (in the case of Christchurch). The credit channel might thus be the wrong one to attack."
Christchurch may be insurance payments; Auckland is not, apart from maybe a few ex Cantabrians. And I don't think Aucklanders by and large had a massive horde of savings squirreled away. You have to assume therefore the driver is foreign money coming in, either through the banks or directly through forex. 
To formally stop some of this money flow may well break a few formal agreements, but for sure, pressure can be applied to the banks to source more money here.
The Treasury has been more guilty than anyone over the last few years, with massive offshore borrowing feeding money into the NZ economy, and keeping the exchange rate artificially high. Some genuine steps to demonstrate that the currency is not a one way bet would likely help stem the flows as well.

Thats not the solution....to

Thats not the solution....to start with ppl (businesses) will only borrow if they can make a return.  So sure lets force banks to only use thier nationally derived deposits, that in turn might well put up interest rates, at that point businesses wont borrow.
Besides which why should depositors be handed a monopoly?  if you dont like the safe rate of return from the bank take it out and invest in a business, or maybe a finance company....
More saving? maybe or more likely not, more like the already saved get a bigger return, which it seems is where the real argument is being made by those who want a higher income.  I suggest the real world is fr more complex and interlinked than your simplistic "solutions" allow for...
 regards

Must be annoying to the banks

Must be annoying to the banks when the RBNZ wont hike rates & customers no longer believe the banks 'forecasts' of rate rises

I would suggest that most of

I would suggest that most of the borrowing is not buy businesses but by people buying houses and with prices increasing at over 10% per annum in Auckland that creates addtional borrowing and I would argue businesses can still make a return with higher interest rates. After all they are at "artificially" low rates now.