RBNZ adds another tool to rein world’s hottest housing market

Dhwani Mehta FXStreet

In order to rein in the country’s rampant housing market, the Reserve Bank of New Zealand (RBNZ) has added a debt-to-income instrument to its toolkit, the central bank Governor Adrian Orr said in a statement Wednesday in Wellington.

Key quotes

“We consider that a DTI limit would be a complementary tool to mortgage Loan-to-Value Ratio restrictions as they address different dimensions of housing-related risk; DTIs reduce the likelihood of mortgage defaults while LVRs largely reduce losses to banks if borrowers default.”

“Although we do not have a remit to target house prices directly, our financial policy tools can help to ensure prices do not deviate too far from sustainable levels.”

“The minister agreed to add debt serviceability restrictions to the RBNZ’s toolkit on the condition that any implementation is designed to avoid impact, as much as possible, to first-home buyers.”

“The bank’s analysis had demonstrated that any such restrictions “would impact investors most powerfully.”

Market reaction

NZD/USD is challenging daily highs near 0.7130, underpinned by the above announcement, defying a buoyant US dollar. All eyes remain on the FOMC decision. The spot adds 0.20% on the day.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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