Government needs to look at new tools for the Reserve Bank to use for controlling inflationary pressures, such as regulating loan to value (LVR) ratios, Labour Party leader Phil Goff said in a speech today.
Goff was speaking to the Employers and Manufacturers NZ Manufacturers and Exporters Association in Christchurch about a pending skilled labour shortage and government responses to the Christchurch rebuild and a sluggish economy.
He was also speaking as banks have ramped up their mortgage lending in recent weeks and have loosened their lending criteria to allow up to 95% loan to value ratios in some cases.
"We cannot afford to damage our export and productive sectors by policies which promote inflationary housing booms which in turn push up interest and exchange rates," Goff said.
"That requires leveling the playing field in terms of not creating tax advantages for property investment over the export economy. It means widening the objectives of the Reserve Bank," he said.
"We need to look at other tools for the Reserve Bank such as regulating the capital to lending ratios to curb inflationary pressure and not just for prudential supervision."
Consensus
Goff's comments come a week after Finance Minister Bill English signalled he was satisfied the Reserve Bank was looking at additional monetary policy tools, such as regulating LVRs, to control price bubbles.
“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 last week.
“I think you’ll find that the regulators like the Reserve Bank are keen to make sure that they reduce that prospect as well,” English 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,” he said.
“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.”
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.
See more on Bollard's comments in Gareth Vaughan's article here.
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