Michael Gordon, analyst at Westpac, explains that the Reserve Bank of New Zealand's six-monthly Financial Stability Report concluded that the risks to New Zealand’s financial system are broadly unchanged since November.
“High debt levels for some households and dairy farms, and New Zealand’s exposure to global developments, continue to be the main points of vulnerability.”
“The FSR noted that “ongoing effort is necessary to bolster system soundness and efficiency”, reflecting the RBNZ’s current proposal to significantly increase the minimum capital requirements for banks. That proposal only recently closed for submissions from the public, and final decisions are not expected until November, so it was inevitable that today’s report would have little new to say on the matter. However, it’s likely to be a major point of focus when the Governor speaks to media and to the Finance and Expenditure Parliamentary Committee later today.”
“The RBNZ’s restrictions on loan-to-value ratios (LVRs) for mortgages were left unchanged.”
“We think that the RBNZ will continue to ease the LVR restrictions over time, as it moves away from a reliance on ‘macroprudential’ polices in favour of ‘microprudential’ measures such as bank capital requirements. Whether we see another LVR easing as soon as November will depend on how the housing market responds to the recent stimulus from a sharp drop in mortgage rates and the ruling out of a capital gains tax.”
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