Off the wire
• China to regulate cyber accounts  • China services PMI down in January: HSBC  • Hong Kong shares up 0.85 pct by midday  • Indian stocks open higher  • DPRK demands withdrawal of UN human rights resolution  • Packed New York train hits car on track, kills at least 6  • Spotlight: China takes UN Security Council helm with eye to marking 70th anniversaries  • Tokyo stocks soars in morning on crude price rally  • Singapore, Myanmar to convene bilateral joint ministerial meeting  • UK, New Zealand military commanders meet amid Islamic State deliberations  
You are here: 　 Home

Soaring property prices risk for NZ economy: central bank chief

Xinhua, February 4, 2015 Adjust font size:

Soaring New Zealand house prices are starting to accelerate, creating risks for financial stability and the wider economy, the head of the Reserve Bank of New Zealand (RBNZ) warned on Wednesday.

While the New Zealand economy was performing well, it faced five main risks and uncertainties, relating to the Chinese economy, and four key prices - dairy prices, oil prices, house prices and the exchange rate, RBNZ governor Graeme Wheeler said.

"Although it has not been a major factor in recent years, high rates of house price inflation can spill over into stronger spending and pressure on consumer price inflation. And the more that house prices get out of line with historic relativities, the greater the risk of a sharp correction, leading to financial instability," Wheeler said in a published speech in Christchurch.

Housing pressures were most intense in the two biggest cities of Auckland and Christchurch, and while the housing shortages in Christchurch were expected to be resolved, house price inflation appeared to be rising again in Auckland.

As Australia and China were New Zealand's main trading partners, accounting for 38 percent of merchandise exports, New Zealand was also vulnerable to any major downturn in China as China was also Australia's main trading partner.

However, there were grounds for confidence that China could successfully transition to a more moderate rate of economic growth, and Chinese demand for whole milk powder remained solid supporting expectations that prices for New Zealand's pillar dairy commodity would recover later this year.

Oil prices, which had fallen 58 percent since the end of June 2014, were also a concern because if the main driver of the fall was weakening global demand, New Zealand's export incomes could expect to continue to be weak.

While the New Zealand dollar had eased recently, its high value remained unjustified in terms of current economic conditions, particularly export prices, and unsustainable in terms of long- term economic fundamentals.

"We expect to see a further significant depreciation," said Wheeler.

In the current circumstances, the RBNZ expected to keep the official cash rate on hold for some time, and that future interest rate adjustments, either up or down, would depend on the emerging flow of economic data. Endi