Reserve Bank right to change Loan to Value Ratio rules

RBNZ right to change LVR rules

10 December 2013

Today the Reserve Bank of New Zealand (RBNZ) announced changes to the Loan to Value Ratio (LVR) speed limits, removing the restriction against new residential builds. This is a sensible concession, reducing some of the political pressure on the LVR policy, and supporting expansion of the housing stock. We need more than a simple reliance on interest rates, say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive John Walley says, “This is a sound response to the claim that the LVR policy was slowing new builds. There could also be a case for regional exemptions as the real asset price pressure is in Auckland and Christchurch.”

“It is important we look beyond the immediate influence of the LVR policy on the housing market, and look to the consequences of increasing interest rates across the economy, particularly for added value exporters and import competing manufacturers. With only interest rates in the RBNZ’s tool box we might well have seen higher interest rates by now when others, such as Australia, are still looking at further loosening of their monetary policy. This contrast is a real worry for exporters.”

“This concession is the right one, but should not detract from the need for LVR policy and perhaps other prudential restrictions at some point.”

ENDS

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