RBNZ given the green light to implement further OCR cuts - BNZ

Kymberly Martin, Senior Market Strategist at BNZ, suggests that the proximate cause of lower NZ yields yesterday was the release of an RBNZ paper on proposed changed to its LVR (Loan Value Ratio) restrictions.

Key Quotes                               

“The new restrictions will be implemented on 1 September, after consultation until 10 August. Banks will then be able to make only 5% of their lending to investors who have less than a 40% deposit. For owner-occupiers, only 10% of bank lending can be to those with less than a 20% deposit. These restrictions will be implemented nationwide i.e. not targeting Auckland specifically. This is due to evidence that strong house price appreciation has spread to other regions. The RBNZ is also still progressing with work on potential debt-to-income ratios to complement LVR restrictions.

Overall these proposed methods are fairly stringent and seen by the market as giving the RBNZ the green light to implement further OCR cuts to try and meet its medium-term CPI target.NZ 2-year swap has broken to an historic low of 2.09%.The market now prices an 80% chance of an OCR cut on 11 August and a 1.75% trough in the OCR within the year ahead. This is now closely aligned to our own central view."