On Nov 11, the central bank announced the official cash rate would remain at 0.25 percent.
The RBNZ also kicked down the road a plan to increase capital requirements for local banks, in order to help lenders respond to COVID-19.
With an eye to a runaway housing market, the RBNZ is laying the groundwork to bring back mortgage loan-to-value (LVR) limits, reining in high risk lending.
Still, that restraint is a drop in the ocean compared to the RBNZ’s quantitative easing program.
The central bank has already launched a $NZ100 billion ($A94 billion) Large Scale Asset Purchase program and in December will add a new Funding for Lending Program (FLP).
The new injection is likely to be worth $NZ30-50 billion ($A28-47 billion).
The RBNZ’s primary motivation is to keep inflation around the target of two percent.
“I would remind people we are in an extremely low global inflation period, something we haven’t experienced through many in the working population’s life,” RBNZ Governor Phillip Orr said.
“It’s the new world.”
In April last year, the RBNZ removed two “speed limits” for high-risk lending, scrapping caps on how many mortgages banks could offer to their borrowers with low deposits.
It will now consult during December on those moves with a view to bringing back those caps in March.
“We are now observing rapid growth in higher-risk investor lending,” Deputy Governor Geoff Bascand said.
“We will consult about re-instating the restrictions we had in place pre-COVID, which limited the amount of high-risk lending that banks could make.”
Orr said he had “no regrets” about removing the LVR limits.
The RBNZ believes the decision to defer the planned increase in capital requirements for local banks would promote cashflow, confidence and stability.
Bascard said the move “strikes the right balance between providing more headroom for banks to support lending now by drawing on their capital buffers, while also ensuring capital levels lift in the longer term to support financial stability”.
“The Reserve Bank remains committed to increasing capital requirements in the medium-term to underpin financial stability,” he said.
The new capital rules were announced in December 2019 and due to come online last July, only for the pandemic to prompt a rethink.
The central bank will confirm the timing – planned for July 2022 – late next year.
Ben McKay in Wellington