Finance Minister Bill English says he is satisfied with the Reserve Bank of New Zealand’s consideration of new tools to control property and asset price cycles so there is no repeat of the house price bubble seen during the last decade.
Reserve Bank Governor Alan Bollard said last month the central bank had identified several macro-prudential tools such as loan-to-value ratio restrictions and counter-cyclical capital buffers it would consider using, potentially in tandem, to moderate a future overheating credit boom.
English was speaking this afternoon to media after a speech to the Wellington Employers Chamber of Commerce on the upcoming May 19 Budget.
The government has signalled there will be no new spending in the budget from last year, with cuts having to be found in all departments except Health, Education and Justice. The government has also signalled its desire to tighten spending in the face of a credit rating downgrade and so it can begin paying back higher-than-expected debt brought on by the Christchurch earthquakes by 2015/16.
Asked whether he was confident the government had done enough to avoid a downgrade, English replied that was a matter the credit rating agencies would decide on, “and my understanding is they’ll wait to see what the budget says”.
“We’re confident that we’re going to be doing enough in this budget to keep the government on track to surplus and to, over the next three or four years, to stop the fast rise in public debt,” English said.
“I know those are issues that the credit rating agencies are concerned about, but we’re also concerned about,” he said.
Asked whether the government would also look to address the issue of New Zealand’s high private sector debt, English said households were addressing that themselves, reducing their new borrowing each year.
“Growth in household debt’s close to zero, and [they are] actually increasing their savings,” English said.
“They did have a debt binge, which meant they’ve got very high levels of debt, but they’re getting that under control. It’s now the government’s turn to get its debt under control,” he said.
English was then asked whether he was worried about a resumption in high foreign debt flows into New Zealand as interest rates rose, and what his thoughts were on new regulatory tools to control an injection of debt into the property market.
Banks 'near death experience'
The Reserve Bank has indicated it will raise interest rates quickly once inflationary effects from the rebuilding of Christchurch begin to flow through to the economy, with some economists picking the RBNZ to raise the Official Cash Rate on December 8 to 2.75% from 2.5% currently.
“We don’t want to see a repeat of the 2000s with excessive property speculation. I don’t think that either domestic or overseas banks are going to allow that to happen, because they’ve had a near death experience themselves, and they’d be reckless to go out and lend strongly against property speculation,” English said .
“I think you’ll find that the regulators like the Reserve Bank are keen to make sure that they reduce that prospect as well,” he said.
“The Reserve Bank is a bit ahead of the international pack, it’s been thinking through the issues of what they call macro-prudential regulation, which is, to deal precisely with property cycles that disrupt the macro economy, and they’ve disrupted it pretty severely in this last round.”
“I’m satisfied they are, by international standards, well ahead of most regulators in thinking through how to handle property cycles, and asset [price] cycles,” English said.
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