Reserve Bank of New Zealand Deputy Governor Grant Spencer said mortgage-lending restrictions introduced this month could ease upward pressure on the local currency by reducing the magnitude of interest-rate increases.
To the extent that the restrictions “dampen overall demand in the economy, they could also reduce the extent of interest-rate increases, and hence exchange-rate pressure, that may be needed over the coming cycle,” Spencer said in a speech in Auckland today, according to a text published on the Reserve Bank’s website. He reiterated that the RBNZ estimates the loan limits are the equivalent of a 30 basis-point increase in the official cash rate.
The lending limits, which took effect Oct. 1, mean that only one in 10 new mortgages issued by banks in New Zealand are allowed to exceed 80 percent of a home’s purchase price. The Reserve Bank introduced the limit in an attempt to cool the housing market without raising rates from a record low and denting an economic recovery.