Government sees less pressure on rates

HAMISH RUTHERFORD
Last updated 12:35 29/07/2014

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Households face only "reasonable" interest rate increases in the coming years, Finance Minister Bill English claims, admitting the housing market is slowing and growth is "flattening".

Last week Reserve Bank governor Graeme Wheeler hiked the Official Cash Rate - the benchmark against which other borrowing rates are set - to 3.5 per cent, but signalled that it may be the last increase in 2014.

Speaking to reporters in Parliament today, English admitted that economic growth - the fastest since the global financial crisis in the past year - was easing.

This, combined with restraint by the Government and households, which were more sensitive to rising interest rates, meant the central bank would have less need to push interest rates up further.

"What we know is that growth rose pretty rapidly over the last 12 months and now it's flattening out a bit," English said.

"We are trying to do what we can to ensure that there isn't excess pressure on interest rates, so the Reserve Bank governor had the benefit of having the Government saying it's not going to do a spendup in the run-up to an election.

"Households are being pretty careful and not going on a debt-funded spending binge like they did back in 2008 when interest rates went to 11 per cent.

"So looking ahead the conditions for a reasonable interest-rate track look pretty good.

"The housing market is gradually slowing, and I think that's partly to do with the Reserve Bank restrictions but I think it's also driven by people getting notices in the mail that are putting their interest rates up. I think New Zealanders are quite a lot more sensitive to rising interest rates this time round than they were in say 2006/7, so they're being a bit more careful about bidding up the price of houses."

Wheeler also said last week that the strength of the New Zealand dollar was "unjustified", a phrase not used by a governor since Alan Bollard in 2007, days before the Reserve Bank intervened to try to lower the dollar by selling its New Zealand dollar reserves.

English signalled that the Government also believed the dollar was overvalued.

"We've used some similar language, I think," he said.

"In the long run there's no reason to think that we are fundamentally a lot stronger than say the Australian or American economy. And as interest rates rise in those economies eventually our dollar will probably drop back a bit."

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English said he had been "a bit surprised" by HSBC's Australia and New Zealand chief economist, Paul Bloxham, who said last week in a note titled "Book your parity party, but not yet" that he expected the New Zealand dollar to challenge parity with the aussie this year.

"We don't try and guess where exchange rates are going to go, but the Australian economy looks to us to be in reasonable shape," English said.

Australian Treasurer Joe Hockey had been "quite positive on China" during a trip to New Zealand last week, he said.

English also played down the likelihood of the establishment of a register of foreign buyers, something he had signalled as possible months ago.

While officials had not given advice on how to set up such a register, English had been given preliminary advice that it was "pretty complex" to do so.

"In some countries where they have them, you know it's very easy to get around them, so that's where it's up to."

- Stuff

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