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Source: MIL-OSI Submissions

Source: CoreLogic

Today’s decision by the Reserve Bank (RBNZ) to keep monetary policy unchanged came as no surprise. After all, although progress has been good, the economy isn’t fully back to normal yet, and the RBNZ’s dual mandate for inflation and employment isn’t quite satisfied at this stage either.

It’s worth noting that banks have begun to draw on the Funding for Lending Programme (FLP), and the total currently stands at around $3bn – about 10% of the estimated potential. Some of these funds have been used by banks to directly target certain types of lending (e.g. on new-builds), and we’d anticipate the FLP continuing to grow in size.

In regards to the property market, the prospect of a stable official cash rate for at least the next year or so suggests no major upwards pressure on mortgage rates until the second half of 2022 – although of course global financial market shifts can have a significant influence too, as well as ‘upside’ inflation surprises within NZ. Indeed, there could well be a slowly building trend for more borrowers to fix for longer periods in the coming months, to provide a hedge against rising rates.

Meanwhile, the RBNZ have completed their analysis on the potential of introducing debt-to-income (DTI) restrictions to regulate mortgage lending and have advised Finance Minister Grant Robertson on its findings (but not made them public yet). The decision on whether they’ll be able to implement any restrictions now rests with Robertson, but nothing will be announced until June at the earliest.

If Robertson grants RBNZ the ability to introduce DTI restrictions, they wouldn’t be operational until at least November anyway and given we expect the housing market to have slowed by then (e.g. due to tighter LVRs, tax changes etc), it’s unlikely they’ll be required.