Boosting post-COVID-19 economy puts NZ in difficult position - economist

by Roxanne Libatique27 Nov 2020

Kiwibank chief economist Jarrod Kerr claims that the Reserve Bank of New Zealand (RBNZ) inflated house prices intentionally to boost the post-COVID-19 economy. However, its effort has put the country in a difficult position.

Kerr said RBNZ’s effort to address the COVID-19 crisis and boost the post-pandemic economy had put the country in a difficult position, with the economy going through a severe recession and house prices continuing to skyrocket.

“So the potency of monetary policy is still there, it’s still alive, and what the central bank has done is inflated house prices. And they would argue that is much better than house prices falling,” Kerr said, as reported by RNZ.

Kerr’s comments came after Finance Minister Grant Robertson defended his letter to the RBNZ asking it to consider house prices as part of its mandate.

Robertson argued that his letter was “designed to make sure that the Reserve Bank is aware of the government’s view that the economic objectives that are part of the remit that we agreed with them in 2019 include ensuring that we reduce inequality and produce more in a sector that’s going forward.”

“We are concerned that rapidly escalating house prices are putting that objective at some risk. So we are asking the Reserve Bank to consider what it can do to support the government in the overall object of sustained moderation of house prices,” he said, as reported by RNZ.

“What we have done is do what is covered for under the Reserve Bank Act, which is for me to seek the advice of the Reserve Bank governor on potential change to the monetary policy remit, so they have to give some consideration to house prices as part of the work they do when setting monetary policy.”

Robertson said the government would consider debt-to-income ratios if suggested by the RBNZ, which Kerr noted to have “more of an impact on first home buyers and make it harder to get on to the ladder, so to speak. And again, that falls under the financial stability part of the Reserve Bank.”

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