New Zealand’s Reserve Bank will add tens of billions more to country’s monetary stimulus program in the hope of pushing up inflation and employment.
On Wednesday, the central bank announced the official cash rate would remain at 0.25 per cent.
The RBNZ also kicked down the road a plan to increase capital requirements for local banks, in order to help lenders respond to COVID-19.
With an eye to a runaway housing market, the RBNZ is laying the groundwork to bring back mortgage loan-to-value (LVR) limits, reining in high risk lending.
Still, that restraint is a drop in the ocean compared to the RBNZ’s quantitative easing program.
The central bank has already launched a $NZ100 billion ($A94 billion) Large Scale Asset Purchase program and in December will add a new Funding for Lending Program (FLP).
The new injection is likely to be worth $NZ30-50 billion ($A28-47 billion).
The RBNZ’s primary motivation is to keep inflation around the target of two per cent.
“I would remind people we are in an extremely low global inflation period, something we haven’t experienced through many in the working population’s life,” RBNZ Governor Phillip Orr said.
“It’s the new world.”
In April last year, the RBNZ removed two “speed limits” for high-risk lending, scrapping caps on how many mortgages banks could offer to their borrowers with low deposits.
It will now consult during December on those moves with a view to bringing back those caps in March.
“We are now observing rapid growth in higher-risk investor lending,” Deputy Governor Geoff Bascand said.
“We will consult about re-instating the restrictions we had in place pre-COVID, which limited the amount of high-risk lending that banks could make.”
Mr Orr said he had “no regrets” about removing the LVR limits.
The RBNZ believes the decision to defer the planned increase in capital requirements for local banks would promote cashflow, confidence and stability.