ANZ's newly announced chief economist, Sharon Zoller, says the Reserve Bank is likely to describe New Zealand’s financial system as sound, but with risks remaining, in the FSR.
Those risks have long included housing market vulnerabilities, but the housing market has cooled significantly over recent months and that means the Reserve Bank may well feel the risk has reduced, she says.
In turn, this means that any commentary on the potential removal of the current LVR restrictions will be jumped on.
Zoller says the Reserve Bank has always said the restrictions, which have led to a reduction of investors in the market and in higher-risk lending, were not meant to be permanent.
ANZ does not believe the Reserve Bank will be ready to remove or even lessen the restrictions yet.
But they do think is possible it will lay out a plan or timeline for when they could be reduced in the future, Zoller says.
“Indeed, we believe that there is a strong possibility that that occurs as soon as May, with perhaps the Reserve Bank drawing confidence from the fact that some of the policies proposed by the new government could act as a (replacement) supressing force on market activity.”
ASB economists agree that the FSR will return the housing market back into the spot light with its LVRs restrictions under scrutiny.
They say that Reserve Bank acting governor, Grant Spencer, has signalled they will lay out the process of how it will unwind LVR restrictions as housing risks recede in this FSR.
Recent comments suggest that once the new government’s housing policies are firmly in place, the Reserve Bank will likely begin to gradually relax the LVR lending restrictions, they say.
“The Reserve Bank is likely to reiterate its desire to have debt-to-income restrictions (DTIs) included in its MoU with the Minister of Finance, but comment that it does not see the need to introduce these restrictions in the current environment.”
For Westpac economists, the Reserve Bank might be reviewing the criteria for easing the LVRs, but the key hurdle is whether easing the restrictions would lead to a resurgence in housing market pressures.
“For now the Reserve Bank has taken a cautious view as to whether the new government’s policies will suppress house prices, but on our forecasts there should be sufficient evidence of this by mid-2018.”
But BNZ senior economist Craig Ebert says they believe it’s too early for the Reserve Bank to be relaxing the LVRs.
They would like to see an assessment of the impact of the tighter LVR restrictions brought in last year, he says.
“We do hope that this FSR outlines the criteria by which the Reserve Bank will start unwinding the LVR policies. We’ll also be interested in any update on work on potential DTI tools.”
While economists may have their reservations about removing the LVRs at this point, it seems many politicians favour their demise.
Finance Minister Grant Robertson today told media that Labour has long had concerns about the LVRs, particularly for first home buyers - but says the party respects the Reserve Bank’s independence.
Both Robertson and Prime Minister Jacinda Ardern have indicated they believe the introduction of some of their housing policies will act as a restraint on the housing market.
Opposition leader Bill English believes the Reserve Bank should provide information on what conditions might lead to the LVRs being lifted.
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