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New Zealand central bank signals inflation risks and healthy financial system

By on November 2, 2021 0

WELLINGTON, Nov. 3 (Reuters) – New Zealand’s central bank on Wednesday warned that growing global inflation risks could push interest rates up and asset values ​​to fall.

In its semi-annual financial stability report, the Reserve Bank of New Zealand (RBNZ) said the country’s financial system remains resilient in the face of COVID-19.

But he noted that more persistent inflationary pressures and any increase in inflation expectations, coupled with weaker growth, could lead to a sudden tightening of financial conditions.

“With the risk of global inflation heightened, already stretched asset prices are facing headwinds from rising global interest rates,” said RBNZ Governor Adrian Orr.

New Zealand’s Consumer Price Index (CPI) surged, as the unemployment rate hit a record high on Wednesday, prompting the market to talk about another interest rate hike at the RBNZ meeting on November 24. read more

New Zealand raised interest rates for the first time in seven years last month and announced further tightening ahead. Read more .

Orr said the job market and other data was “very volatile,” but the underlying trend was clear.

“The economic shock of COVID-19 has had a significant impact on the economy’s supply as well as demand. We are seeing strong demand for all resources at a time when the ability to meet that demand is being challenged. question, ”Orr said. a press conference.

CORRECTION OF HOUSING

The RBNZ said house prices are above their sustainable level, increasing the chances of a correction.

Housing in New Zealand is the most unaffordable among OECD countries, with prices climbing about 30% in 12 months due to a severe housing shortage, historically low interest rates and cheap access to capital through government stimulus spending related to the pandemic.

Orr said the supply of space and land for housing was the main driver of house price volatility.

The bank will start consulting this month on implementing debt service restrictions to address housing risks, but said lenders would need around 6 months to put them in place once. that they will have been designed.

It will also increase the minimum core funding ratio (CFR) requirement for banks to the previous level of 75% from January. The CFR was reduced to 50% in April to give banks more flexibility to manage funding during the pandemic.

Reporting by Praveen Menon; edited by Chris Reese and Richard Pullin

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