Bernard Hickey - Bollard bets on end to housing love affair

Photo / Martin Sykes

Anyone who arrived from Mars after a couple of years away and looked at the Reserve Bank's December quarter monetary policy statement would be scratching their heads.

How is it a Reserve Bank can virtually promise to keep the Official Cash Rate on hold at 3 per cent for another six months when headline inflation will hit 5 per cent next year and it is forecasting economic growth will rise to 4 per cent within the next two years?

Surely this does not compute? An OCR lower than inflation and economic growth for a couple of years?

Surely that will just inflate yet another credit-fuelled bubble?

The Reserve Banks is relying on the power of households and businesses remaining reluctant to take on extra debt in the next couple of years.

The initial signs are the Reserve Bank's confidence in the power of deleveraging to keep a lid on the economy might be justified.

But I worry that the banks are trying to unleash those animal spirits in the housing markets again. Mortgage approvals have surged again in the last four weeks and the banks are out again offering 90 per cent plus home loans.

ANZ's new CEO David Hisco even told us this week the country's biggest bank was "back in the game" and loosening its credit rules a bit to increase demand for loans.

House prices are already stabilising in the wealthier parts of the country.

The Reserve Bank's strategy has some risks attached.

It's betting on New Zealanders ignoring the ads for cheap loans and giving up on their love for houses.

That's quite a bet for a Reserve Bank that sets rates now for effects two years away.