RBNZ implement new limits on lending – restricts high debt to income loans

Reserve Bank of New Zealand announcement:

  • new DTI restrictions (debt to income)
  • will create limits on the amount of high-DTI lending that banks can make (i.e. where the borrower has taken on a high amount of debt relative to their gross, or pre-tax, income)
  • LVR restrictions limit the amount of low-deposit lending that Banks can make.
  • “LVRs target the impact of defaults by reducing the amount of potential losses in the event of a housing down-turn. While DTIs reduce the probability of default by targeting the ability of borrowers to continue to repay debt. Both act as guardrails reducing the build-up of high-risk lending in the system,”
  • “Having both the DTI and LVR restrictions in place means we can better focus them on the risks that they are designed for while achieving the same or better overall level of resilience in the financial system. Therefore, activating DTIs means that we can ease LVR settings too.”

More info is here:

Reserve Bank activates Debt-to-Income restrictions

Last week the RBNZ left its cash rate unchanged and indicated it expected inflation to fall to target by the end of this year:

NZD/USD is little changed on the new news:

This article was written by Eamonn Sheridan at www.forexlive.com. Source