Our evolving view of macroprudential policy

The approach to using macroprudential policy tools at the Reserve Bank of New Zealand – Te Pūtea Matua has evolved alongside our experience with them, Deputy Governor Christian Hawkesby says in a speech published today.

As a full-service central bank, the Reserve Bank is tasked with promoting a sound and efficient financial system alongside our monetary policy, cash provision and financial markets infrastructure objectives.

Our experience since 2013 has informed us that macroprudential tools are an important part of delivering on our responsibility for the stability of the financial system as a whole, alongside other prudential settings, Mr Hawkesby says.

“We have shifted our loan-to-value (LVR) restrictions through time, applying different setting for regions and types of borrowers, and adjusted our settings in response to the changing threats to financial stability.

“Over time we have evolved our thinking from considering LVR restrictions on mortgage lending to be a temporary tool for managing ups and downs in the financial cycle to seeing them to be a more permanent device to maintain the resilience of the financial system.

“We have also come to see that it is important to have a fuller suite of macroprudential tools, which help manage both the risks to the financial system from a fall in house prices and the risks to households being unable to service their debt. Following our recent debt serviceability restrictions consultation, we intend to proceed with designing a framework for operationalising debt-to-income ratio restrictions.”

We have reviewed our LVR settings on average every six months over the past decade. Compared to our 30-year history with monetary policy, macroprudential policy is still in its infancy in New Zealand, Mr Hawkesby says.

“We are still learning and finding our rhythm. Ensuring that the public understands and supports why our policy tools are being used is an ongoing work in progress, and maintaining our social licence remains of upmost importance.”

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