The Reserve Bank made a mistake cutting its official cash rate last year and the resulting reignition of house price inflation means the central bank will probably tighten loan-to-valuation restrictions on bank lending, according to economist Tony Alexander.
The former Bank of New Zealand chief economist wrote in his latest newsletter that hindsight shows the cuts of 25 basis points in May and then by 50 points in August, taking the OCR down to 1 per cent, were unnecessary, Alexander said.
"They shouldn't have done that. They didn't need to," he told BusinessDesk, adding that the central bank had panicked about how negative business confidence had become.
The 50-point cut was initially counter-productive. Previously the RBNZ had only moved the OCR by 50 points in times of crisis, so the August cut left the business community worrying about what crisis the central bank could see that they might have missed.
Business confidence has since lifted off its lows and, in any case, the depths to which it had fallen wasn't a gauge of what was actually happening in the real economy, Alexander said.