NZ Herald editorial: After smart call on LVRs it's a shame Governor can't stick around

Reserve Bank Governor Grant Spencer during their Six-Monthly Financial Stability Report press conference in Wellington. 29 November, 2017. New Zealand Herald photograph by Mark Mitchell

Editorial

It's a shame acting Reserve Bank governor Grant Spencer can't stick around because his first big move in the top job has proved to be very adept.

Spencer surprised many this week by moving to ease Loan to Value Ratio (LVR) restrictions which have been limiting how much money banks can lend and successfully moderating the excesses of the housing market.

From January 1 the Reserve Bank will increase the cap on new mortgage lending by retail banks to owner occupiers from 10 per cent to 15 per cent.

Currently no more than 10 per cent of loans can go to owner occupiers with a deposit of less than 20 per cent.

It's a move that will have gone down well with Finance Minister Grant Robertson, who has expressed his opinion that LVRs should be winding down.

It will have also cheered first home buyers who should, from January 1, have more chance of getting a mortgage approved with less than a 20 per cent deposit

The move was less well received by property industry groups.

The easing of investor restrictions was more subtle and there were predictable calls that they did not go far enough.

But still the proactive approach dampened the voracity of critics.

The moves were almost a sleight of hand by the Reserve Bank given the changes are unlikely to make much difference to a housing market that is already stalled and faces further pressure from new Government policies.

Spencer himself told media on Wednesday: "This gives the banks a little bit more latitude in their lending decisions but it is really only a change at the margins and we don't expect it to have a significant effect – at all."

It was classic central banker line, at once undermining the exuberance of the media headlines and also emphasising that good macroeconomic policy should set boundaries for markets – not move them.

As head of financial stability at the Reserve Bank for a decade Spencer played a key role in the formulation and implementation of loan to value ratio restrictions.

But if they are his baby then he has shown admirable emotional distance in moving now to wind them down.

Spencer is politically savvy and appears more than capable of steering the Reserve Bank through the reform process being put forward by the new Government, and on through the traditional five year term.

He won't though.

Spencer is bumping up against the same anachronistic Reserve Bank age limits which saw Graham Wheeler depart after just one term.

Essentially there is a 70-year age limit on the Governor's role which Wheeler and Spencer would both have exceeded before the end of the next term in 2022.

Regardless, Spencer has made it clear he will retire in March having stepped into the breach for six months to see us through the election and transition to a new Government.

One would hope that both the Government and Reserve Bank board can find a way to keep him involved in an advisory role as plans for a major overhaul of monetary policy unfold next year.

Meanwhile the decision on a new Reserve Governor cannot be far away now.

While Wheeler expressed confidence in internal candidates for the role – either deputy governor Geoff Bascand or assistant governor John McDermott – it would not be a surprise to see the new Government, with its focus on reform, looking outside the existing team.