RBNZ’s Orr in fiery exchange with politicians over house prices

(Bloomberg) – New Zealand central bank governor Adrian Orr has dismissed accusations he’s over-boosting the economy and driving house prices to unsustainable levels with ultra-low interest rates during the pandemic.

In a heated exchange with politicians on the finance and spending select committee on Thursday in Wellington, Orr was asked whether the Reserve Bank’s underestimation of house price gains had led her to conduct an overly flexible monetary policy.

“Thinking about how wrong the Reserve Bank’s forecast for house price growth has been, do you think you’ve activated the money pipe too much in 2020? Asked National Opposition Party MP Nicola Willis.

“Thank you for your pointed and pointed question,” Orr replied. “No, I stand by everything we’ve done and I’m incredibly proud of everything we’ve done as critically needed.”

After the RBNZ cut its official rate to 0.25% and began to appease its interest rates, New Zealand house price inflation soared to over 30%, making it one of the hottest real estate markets in the world. Orr said the bank’s job was to meet its employment and inflation mandates, not target house prices, and that it had achieved those goals.

Low borrowing costs were only one factor in the rise in house prices, he said, citing fiscal policy, the closed border and New Zealand’s successful health response to the pandemic. .

“The reason house prices are where they are is because employment has turned out to be stronger, it’s because we’ve had a strong economy,” Orr said. “The Reserve Bank doesn’t target house prices, I really wish people could figure that out.”

“Well, Governor, I understand that,” Willis replied. “Are we not in a situation where, with the least affordable housing in the developed world, with people taking on a large amount of debt, the Reserve Bank will be limited in its ability to raise OCR to l future due to financial stability risk that this may put a strain on household budgets? “

“No,” Orr said, that was a “misinterpretation of the facts.”

The financial system was incredibly robust and the banks were highly capitalized and profitable, he said.

Rising rate

The RBNZ said yesterday it intends to start raising interest rates to cool the economy and bring inflation – which it expects to hit 4.1% this year – to its range. target of 1 to 3%.

As rates rise, some heavily indebted households may find themselves in financial stress, Orr said, but “we cannot apply monetary policy to the convenience of every household.”

As the RBNZ and the government introduced measures to curb housing demand, Orr said the fundamental problem was the lack of supply and the central bank is not building houses.

Some committee members have been pushing Orr in recent months over the RBNZ’s forecast for house prices and the impact of his policies on the housing market. Yesterday, the RBNZ predicted that house prices will start to fall at the end of 2022 as interest rate hikes intensify.

Government said RBNZ’s new tenure had no impact on housing, emails say

Willis said some of Orr’s written responses to specific questions from the committee were “circular” – he had cited lower mortgage rates than expected by the RBNZ as one of the reasons for his real estate were wrong, but it was surely the bank’s own actions that led to lower mortgage rates, she said.

“It’s not circular, it’s about how the economy unfolds over time,” Orr said. “To speak of ‘circular’ because we have succeeded with what we have set out to do, I find very confusing and not very constructive. “

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