Reserve Bank Governor Alan Bollard has again warned that New Zealanders need to live within their means to reduce the risk that a loss of confidence by foreign lenders would damage the economy. Bollard said in releasing the RBNZ's 6 monthly financial stability report that the improved global outlook was generally positive for New Zealand, but the rise in the New Zealand dollar since March was unsustainable and could hurt an improvement in New Zealand's current account deficit. "The New Zealand economy needs to live more within its means to reduce the vulnerability to adverse developments in offshore markets," Bollard said. "While we see some progress to recover savings and reduce our current account deficit, there is still a considerable adjustment needed to reduce our vulnerability to external shocks," he said. "To assist this we need to ensure there is no return to a debt-fuelled housing cycle, which would likely bring with it further exchange rate pressure and erosion of competitiveness." Bollard also warned banks not to lend too aggressively to home buyers and noted some softening of credit standards and offers for higher loan to value mortgages.
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