Reserve Bank inaction on the housing market has led the Government to introduce a new process that gives the Finance Minister more power in its decision-making, one economist says.
The Government announced a package of measures on Thursday, including guaranteeing deposits up to $100,000 per person.
The reforms also include a new process for setting lending restrictions, like the loan-to-value ratios that limit the amount of low-deposit lending that can be done.
This will give the Minister of Finance a role in determining which types of lending the Reserve Bank is able to directly restrict. The Reserve Bank will then have full discretion to decide which instrument is best suited to use and how the restrictions are applied, Grant Robertson said.
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As with other prudential requirements, lending standards policies will be subject to more general requirements such as consultation with other government agencies and the public, and the Reserve Bank needing to have regard to the Minister of Finances Financial Policy Remit.
Economist Shamubeel Eaqub said this had been a likely outcome since Robertson wrote to the Reserve Bank last November, urging it to think about house prices when it made its decisions. Governor Adrian Orr kicked the issue back to the Government, although it did introduce tighter lending restrictions for investors as of next month.
First-home buyers arent likely to get any relief but other buyer groups might face tougher restrictions.
Eaqub said the bank had had one chance to show it was willing to do something but had been too slow.
I dont think the bank understands the very big change thats coming its way.
He said financial stability would be an increasingly important consideration for central banks all over the world in the coming years. But the Reserve Bank still thought about it in terms of bank failures. At the same time, it was creating capital that was flowing through to housing and inflating prices, he said. They stand there with a straight face and say its not our fault.
Borrowers would probably notice little difference, Eaqub said. He did not expect Robertson to ease the loan-to-value restrictions on first-home buyers, but there could be more targets on the groups that the Government wanted to stop stoking demand, such as investors.
ANZ chief economist Sharon Zollner said, while it was important for the Reserve Banks monetary policy decisions to remain independent, macroprudential policy decisions were less of a concern.
Infometrics chief forecaster Gareth Kiernan said how much of a problem the Governments influence was would depend on who was in the finance minister role.
Robertson had shown himself to be reasonably conservative, he said.
