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2 Oct 2013
RBNZ warns rates in New Zealand heading much higher
FXstreet.com (Barcelona) - Despite the intentions by the RBNZ to hike rates in the near future have been well telegraphed, an article published by the RBNZ earlier today has further alimented the suspicion that the RBNZ is in for something big, but most importantly, still not fully priced by the market, as Governor Wheeler warns rates may increase by 2% from 2014 to early 2016.
Official statement by Governor Reserve Bank of New Zealand - key quotes
"Our concern is that excessive increases in house prices in parts of the country, if unchecked, pose increasing risk for the financial system and the broader economy."
"Over the next two years interest rates are likely to rise in order to restrain an expected increase in broader inflation pressures."
"We currently expect that the official cash rate could increase by 2 percent from 2014 to the beginning of 2016. This could result in interest rates on first mortgages of 7-8 percent. If the loan-to-value speed limit is unable to slow house price inflation, larger increases in the official cash rate would be required."
"We are keen to see house price inflation moderate significantly and, in doing so, reduce the risks to the financial sector and the broader economy. Speed limits on low deposit lending are designed to help achieve this."
"Loan-to-value restrictions are expected to give the Reserve Bank more flexibility as to when and how quickly we have to raise interest rates, but the more fundamental solution to reducing pressure in the housing market lies in addressing the issues around housing supply.
The comments follow the upgraded hawkish rhetoric presented in the last meeting, in which Wheeler said: "OCR increases will likely be required next year. The extent and timing of the rise in policy rates will depend largely on the degree to which the momentum in the housing market and construction sector spills over into broader demand and inflation pressures. We expect to keep the OCR unchanged in 2013."
According to Adam Button, lead editor at Forexlive: "The OCR is at 2.50% with the OIS market priced at at 3.30% in two years time. On the face of it, this is a massively bullish comment. The house price rally isn’t going to stop and foreign money will continue to flood the tiny New Zealand housing market so you can bet Wheeler’s promise will be put to the test."
Official statement by Governor Reserve Bank of New Zealand - key quotes
"Our concern is that excessive increases in house prices in parts of the country, if unchecked, pose increasing risk for the financial system and the broader economy."
"Over the next two years interest rates are likely to rise in order to restrain an expected increase in broader inflation pressures."
"We currently expect that the official cash rate could increase by 2 percent from 2014 to the beginning of 2016. This could result in interest rates on first mortgages of 7-8 percent. If the loan-to-value speed limit is unable to slow house price inflation, larger increases in the official cash rate would be required."
"We are keen to see house price inflation moderate significantly and, in doing so, reduce the risks to the financial sector and the broader economy. Speed limits on low deposit lending are designed to help achieve this."
"Loan-to-value restrictions are expected to give the Reserve Bank more flexibility as to when and how quickly we have to raise interest rates, but the more fundamental solution to reducing pressure in the housing market lies in addressing the issues around housing supply.
The comments follow the upgraded hawkish rhetoric presented in the last meeting, in which Wheeler said: "OCR increases will likely be required next year. The extent and timing of the rise in policy rates will depend largely on the degree to which the momentum in the housing market and construction sector spills over into broader demand and inflation pressures. We expect to keep the OCR unchanged in 2013."
According to Adam Button, lead editor at Forexlive: "The OCR is at 2.50% with the OIS market priced at at 3.30% in two years time. On the face of it, this is a massively bullish comment. The house price rally isn’t going to stop and foreign money will continue to flood the tiny New Zealand housing market so you can bet Wheeler’s promise will be put to the test."