RBNZ says house prices and dairy incomes pose financial stability risks

Reserve Bank of New Zealand said rapid increases in house prices and low dairy sector incomes pose financial stability risks, the Statement of Intent (SOI) for 2016-2019 showed. According to the document, "the economy faces a number of headwinds, including low export commodity prices, particularly in the dairy sector, weak world demand and a cautious household sector."

Regarding inflation, RBNZ noted that while there has been a material decline in short-term inflation expectations, and Consumer Price Index (CPI) outturns have been outside the Bank’s 1-3 percent target band, "long-term inflationexpectations are well-anchored at 2 percent."

Governor Graeme Wheeler on the Statement of Intent (SOI) for 2016-2019:

"New Zealand’s economy is expanding, but there are headwinds and many uncertainties around the outlook,” Mr Wheeler said. “New Zealand’s financial system remains sound and well placed to support economic expansion, but rapid increases in house prices and low dairy sector incomes pose financial stability risks.

"We are working to deepen the Bank’s understanding of the current drivers of low inflation and the consequences for the economy and monetary policy.

"The Bank is implementing changes in response to the regulatory stocktake and reviewing key financial policies to best support the soundness and efficiency of the financial system. We are also working with the banks to further develop the stress-testing framework for the New Zealand banking system."

The SOI, signed off on 21 June, outlines the Bank's priorities for the next three years, and is framed around three themes: enhancing the Bank’s policy frameworks; continuing to strengthen the Bank’s internal and external engagement; and improving infrastructure and reducing enterprise risk.