Reserve Bank of New Zealand FSR – financial system is sound, vulnerabilities remain

RBNZ Financial Stability report published 05 May 2021 

Headlines via Reuters in summary:

  • financial system sound, but vulnerabilities remain
  • seeing the impact of low global interest rates resulting
    in increased risk-taking and higher asset prices
  • high proportion of new lending has had high
    debt-to-income and loan-to-value ratios (LVR).
  •  new capital rules will start being implemented from 1
    October 2021
  • we will be watching how market conditions respond to the
    government’s recent policy changes
  •  recent borrowers more vulnerable to rise in mortgage
    rates, exposes households and financial system to decline in house
    prices
  • key New Zealand export prices have also been resilient,
    with dairy prices at their highest level in several years
  • increases in minimum requirements will start in July 2022
  • if required, prepared to further tighten lending
    conditions for housing using LVR requirements or additional tools
  • recent tightening in LVR requirements will help mitigate
    some housing risks & support sustainable house prices
  • pandemic has had limited impact on financial system
    soundness, but further resilience is needed
  • banks are in a strong position to keep supporting their
    customers and the economy

I bolded a few of those points above. Note particularly “additional tools” could be used – these of course could (but not necessarily) include interest rate rises. 

There will be a press conference following this release at 2300GMT. 

RBNZ Dep Gov Bascand will step in.

Then, at 0110 GMT, Bascand appears before parliament to answer questions following the release of the bank’s FSR. 

Governor Orr: 

RBNZ Financial Stability report published 05 May 2021 

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