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27 Aug 2013
RBNZ to hike by Q1 2014 despite LVR restrictions - Westpac
FXstreet.com (Barcelona) - Whether the loan-to-value ratio (LVR) restrictions established by the RBNZ to cool down the housing bubble in New Zealand shows positive results or not, "no-one including the Reserve Bank really knows" notes Imre Speizer, FX Strategist at Westpac.
Key Quotes
"In a nutshell, our view is that the restrictions will slow house price growth for a while, before investors return to the market and prices rise once again. Meanwhile, the economic upswing continues and inflation pressures build."
"Recent estimates have shown that high-LVR loans make up about 30% of new lending. Halving this ratio to 15% should produce a ‘sticker shock’ effect and lead to a sharp, but temporary, drop-off in house sales and household credit growth in late 2013. However, beyond this short-term effect, we think that the long-term effect on the housing cycle will be limited and a higher OCR will be required."
"Inflation expectations data released last week raised one red flag. We expect those signs to be more obvious by early next year, prompting a hiking cycle starting in March 2014."
Key Quotes
"In a nutshell, our view is that the restrictions will slow house price growth for a while, before investors return to the market and prices rise once again. Meanwhile, the economic upswing continues and inflation pressures build."
"Recent estimates have shown that high-LVR loans make up about 30% of new lending. Halving this ratio to 15% should produce a ‘sticker shock’ effect and lead to a sharp, but temporary, drop-off in house sales and household credit growth in late 2013. However, beyond this short-term effect, we think that the long-term effect on the housing cycle will be limited and a higher OCR will be required."
"Inflation expectations data released last week raised one red flag. We expect those signs to be more obvious by early next year, prompting a hiking cycle starting in March 2014."