By David Hargreaves
A planned meeting between the Reserve Bank Governor and the Finance Minister to discuss debt-to-income ratios has been cancelled, probably scuppering any lingering hopes the central bank had of getting the sign-off to install DTIs into its macro-prudential toolkit before the end of the year.
And with any discussions between the RBNZ and the Government on DTIs now unlikely to take place before the end of the summer break, the chances of the RBNZ getting any agreement for DTIs before the election start to look slim.
The pre-Christmas meeting between the RBNZ and the Finance Minister, the existence of which was perhaps surprisingly revealed by RBNZ Governor Graeme Wheeler at a media conference on November 30, was a victim of the Government reshuffle, which has seen Finance Minister Bill English move up to Prime Minister.
The Reserve Bank confirmed that its meeting with the Finance Minister had been cancelled and that as of now it doesn't have a new scheduled date for such a meeting.
This will be a blow to the RBNZ, which has appeared increasingly keen to get approval in principle to add DTIs as soon as possible to the macro-prudential tools, even to the point of Wheeler stressing - effectively promising - that the central bank would not use the tool "at this time".
Wheeler's revelation at the end of last month that he was to - in about two weeks from then - have another meeting with Bill English, came amid increasing signs that the Government was pushing back against having DTIs added to the list of macro-prudential tools.
With the RBNZ's new 40% deposit rules for housing investors seemingly having some impact in slowing the housing market, the Government has seemed keen to take a wait-and-see attitude before agreeing to allowing more macro-prudential tools.
And with a new Prime Minister and Finance Minister to be bedded in, the Government will have a ready excuse for further delaying any green-lighting of DTIs. With a Budget to pull together in May, and then an election possibly in September, it all means the RBNZ's last chance of getting DTIs made available to it before 2018 might now have gone.
This won't be a problem if the recent extension of LVRs through the 40% deposit rule continues to slow the housing market.
If the housing market, however, does pick up again in the early months of next year - much as happened this year following the short-term impact of investor LVR rules specific to Auckland - then the RBNZ could be left short on firepower to tackle the issue, much as it was early this year.
The macro-prudential toolkit was signed off on by English as Finance Minister in 2013.
The RBNZ now appears to clearly regret not getting DTIs inserted as one of the tools then. However, for whatever reason, it did not appear to give serious thought to including DTIs at that time.
When the RBNZ went through the consultation process in early 2013 prior to getting formal sign-off on the macro-prudential tools, the central bank said that "a number of submissions" to it had suggested that it should consider including a debt service coverage measure in the macro-prudential toolkit, either in place of, or in combination with, an LVR restriction.
"The Reserve Bank agrees that debt servicing is an important factor in assessing borrower vulnerability and we would not rule out the possibility of incorporating a debt servicing ratio restriction as part of the macro-prudential policy toolkit in the future," the bank said in response at that time.