Tools no substitute for OCR: Economists

The Reserve Bank has issued a consultation document on its proposed macroprudential tools, including proposals such as loan-to-value restrictions, a countercyclical capital buffer and sectoral capital requirements and a core funding ratio.

The tools are designed to have an impact on credit growth without affecting the exchange rate.

Westpac senior economist Michael Gordon said such tools were likely to be used in combination with OCR increases.

And he said the result would likely be the same for borrowers – in the first instance, most of the tools – apart from loan-to-value restrictions – would raise the cost of borrowing.

Gareth Kiernan, managing director of Infometrics, said macroprudential tools could  take the heat out of the housing market but it would take some time and it was unclear whether the tools were sufficiently acute.

“If you are worried about the Auckland market, are they able to target that sufficiently?”

He said there seemed to be suggestions that if loan-to-value restrictions were introduced, there would be ways of circumventing that.