Tomorrow's six-monthly Financial Stability Report from the Reserve Bank of New Zealand looks certain to include new policy to tighten lending restrictions for Auckland property investors, with deputy governor Geoff Bascand the latest in the line-up of senior central bank officials to hint at the form those rules might take.
Speaking to the Otago Daily Times yesterday, Bascand discussed the potential to make regionally targeted interventions to try to cool property markets judged to be overheated.
"Previously we've indicated we think that's quite difficult, but perhaps there may be new ways of it getting a little bit more possible," Bascand told the ODT. "We're reconsidering that (regionally targeted intervention). It's a time of close scrutiny.
The booming Auckland property market, with prices up a whopping 16.7 per cent in the year to March, has prompted a series of warnings given recently by the central bank that it may move beyond the Loan to Valuation ratio rules it imposed to some effect in late 2013 to restrict the proportion of bank's lending books going to low deposit buyers.
In a speech last month, deputy governor Grant Spencer, in charge of financial stability, warned on "action needed to reduce housing imbalances", citing Auckland's rampant house price inflation as a risk to financial stability.
The central bank's concern is heightened by Auckland's relatively greater importance as a single city to the whole New Zealand economy than single cities in most other developed countries.
Heightening the likelihood of financial stability policy announcements at tomorrow's Financial Stability Report release are the consultations the bank concluded April 17 on a new asset class of residential property investor, which banks would ring-fence and may have to carry extra capital to service. Decisions were to have been announced at the end of last month, according to the RBNZ website.
The decision comes at a time when the RBNZ is also under increasing pressure to consider cutting the Official Cash Rate from 3.5 per cent, an action it resists in part because even lower interest rates could spur further Auckland house price inflation.
Five of the 14 banks routinely surveyed by Reuters now expect the RBNZ to cut interest rates this year, up from three yesterday as the evidence mounts that wage and consumption pressures are not at present inflationary.
Last week's employment and labour cost figures showed less wage pressure than expected, while yesterday's electronic card transaction data was weaker than expected.
The central bank has clearly indicated that these are two key barometers for decisions on whether to hold the OCR or cut interest rates.
ANZ, ASB, Deutsche, First NZ Capital, and Royal Bank of Canada expect rate cuts in either June (three) and September (two).
The kiwi dollar has taken a tumble since yesterday's electronic transactions data, a key measure of retail activity. The kiwi touched 73.30 US cents, and was trading at 73.38 cents at 8am in Wellington, from 73.83 cents at 5pm yesterday. The trade-weighted index dropped to 76 from 76.45 yesterday.