WELLINGTON (Reuters) – New Zealand’s central bank on Friday rebuffed a government call for it to add house prices to its monetary policy remit, despite growing concerns about a property market bubble.
Finance Minister Grant Robertson last month urged the Reserve Bank of New Zealand to factor in house prices when considering monetary policy to help the government’s efforts to cool soaring home prices.
However, Governor Adrian Orr said on Friday the bank would prefer an amendment to its financial policy remit if the government wanted to strengthen the Bank’s role in relation to house prices.
“Adding a housing consideration to the financial policy remit could lead to policies that are more effective at supporting the government’s housing objectives, with lesser concern for policy trade-offs,” Orr said in a detailed response sent to Robertson, which was made public on Friday.
Historically low interest rates, along with other monetary and fiscal stimulus to support a pandemic-hit economy have fired up New Zealand’s housing market, wrong-footing many economists who had expected a slowdown after years of rising prices.
Orr said adding housing to the monetary policy remit could lead to the monetary policy committee (MPC) making decisions that moderate house prices, but it was unlikely to result in significant policy changes.
He said targeting higher interest rates to cool housing would lead to lower employment and below target inflation and inflation expectations.
“If there were trade-offs between the house price consideration and the MPC’s economic objectives of stable inflation and sustainable employment, the MPC would be obligated to formulate policy that supports its price stability and employment objectives,” Orr said.
(Reporting by Praveen Menon; editing by Richard Pullin)
