RBNZ: financial system can support national economy.

The Reserve Bank of New Zealand released its May 2022 Financial Stability Report. Reuters posted key notes from the reports follows:

The New Zealand financial system remains well placed to support the economy.

House prices remain above sustainable levels despite recent declines.

Rising global interest rates have put downward pressure on the prices of assets such as equities; housing.

Expect to see a slowdown in high-DTI lending over the coming months.

While gradual adjustment in house prices to a more sustainable level is desirable for the stability of the financial system, larger correction remains a possibility.

If interest rates need to increase more than currently anticipated to contain inflationary pressure, this could lead to a softening in the labour market over time.

Expect the increasing trend in capital ratios will continue during the next few years as the remaining elements of capital review are implemented.

Proceeding to design a framework for operationalizing DTI restrictions.

Our 2022 stress test programme investigates risk for banks from higher interest rates & falling house prices.

Underlying weaknesses in some industries may be revealed as targeted fiscal support is removed.

Intend to have the framework for operationalising DTI restrictions finalised by late 2022.

A slowdown in global growth, increasing trade protectionism, or further sanctions could amplify trade impacts in NZ.

Meanwhile, the NZD has been drifting in markets on Tuesday ahead of key employment data but it erased most of yesterday’s gains made before the larger than expected hike by the Reserve Bank of Australia.