The Reserve Bank of New Zealand released its Financial Stability Report this morning causing the NZD/USD to zigzag. The rate plunged and then recovered somewhat at the news that the RBNZ will be tightening its lending limits in an effort to slowdown the too robust housing market.
In his speech, RBNZ Governor Graeme Wheeler, said that the dollar level was unsustainable and pointed to that the omission of the word “unjustified” when recounting NZD’s value.
The Financial Stability Report provides important information on the central bank’s view of what is happening in domestic and global markets. The report presents data on a number of financial issues such as growth expectations, housing prices, and inflation and is able to make valuations for its current and future policies in the financial arena.
According to Governor Wheeler, “New Zealand’s financial system is sound and operating effectively, but faces significant risks.”
Three Systemic Risks
He pointed to three systemic risks facing the country. The first major risk refers to the fact that the median house price in Auckland is 60 percent above its 2008 level with prices continuing to rise.
The second area of risk relates to the dairy sector, with dairy farms facing a sharp drop in incomes due to lower international prices.
The third key risk is a combination of low interest rates, investments in risky assets and overextended real assets. “There is an increasing risk that the current benign conditions unwind in a disorderly fashion, disrupting the cost and availability of funding for the New Zealand financial system,” said Wheeler.