Housing Going Nuts

Going Nuts’

“The housing market is going nuts, the last thing it needs now is more stimulus,” said Stephen Toplis, head of research at Bank of New Zealand in Wellington. “This is nightmare country for the RBNZ – a soaring currency accompanied by soaring house prices and soaring household debt. The bank is damned if it does, damned if it doesn’t.”

Consumer prices rose 0.4 percent in the first quarter from a year earlier – the sixth straight quarter inflation was less than 1 percent. Further damping prices, New Zealand’s trade-weighted currency index this week rose to a five-month high as investors reduced bets that the U.S. Federal Reserve will raise rates before September.

Wheeler lowered the cash rate in March and signaled that one further reduction would likely be needed to ensure future average inflation settled near 2 percent, a view he repeated in April. In May, he said the central bank was “seriously looking” at additional lending restrictions to help curb the housing boom.

“For the RBNZ to be noting financial stability concerns from housing at the same time as cutting would be contradictory to say the least,” said Cameron Bagrie, chief economist at ANZ Bank New Zealand in Wellington, who expects no change tomorrow. “We don’t believe the economy needs additional stimulus right here.”