"We are keen to see house-price inflation moderate significantly. If the loan-to-value speed limit is unable to slow house-price inflation, larger increases in the official cash rate would be required."
- RBNZ Governor Graeme Wheeler
During the last policy meeting the Reserve bank of New Zealand hinted at a possible rate hike in the next year in order to curb the inflation; however, there are risks now interest rates may rise even faster unless house-price inflation, which expanded at the fastest pace since early 2008, is brought under control. Currently RBNZ Governor Graeme Wheeler expects the borrowing costs to increase to about 4.5% by early 2016. As a result, mortgage rates are likely to reach 7-8%. In case house-price inflation will continue moving higher, larger increases in the official rate would be vital. Earlier Wheeler was reluctant to raise key rate to curb the constantly growing housing prices, as any shifts in the policy that will lead to the appreciation of domestic currency, may hurt economic recovery. Earlier this week the RBNZ imposed limits on property lending, as authorities increased the loan-to-valuation ratio up to 80%.
In the meantime, the Green Party is calling for a change in rules to allow the RBNZ board to make any decisions, limiting the governor's power. The majority of central banks from developed countries, like the Federal Reserve, Bank of England and the ECB take any policy decisions by committee. In contrast, single-decision-maker approach is posing significant risks for the economy, as it may lead to poor judgment. The RBNZ Governor has the final vote on interest rates after other officials express their opinion, while they do not vote and their deliberations are not available for the public.
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