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In order to rein in the country’s rampant housing market, the Reserve Bank of New Zealand (RBNZ) has added a debt-to-income instrument to its toolkit, the central bank Governor Adrian Orr said in a statement Wednesday in Wellington.  

Key quotes

“We consider that a DTI limit would be a complementary tool to mortgage Loan-to-Value Ratio restrictions as they address different dimensions of housing-related risk; DTIs reduce the likelihood of mortgage defaults while LVRs largely reduce losses to banks if borrowers default.”

“Although we do not have a remit to target house prices directly, our financial policy tools can help to ensure prices do not deviate too far from sustainable levels.”

“The minister agreed to add debt serviceability restrictions to the RBNZ’s toolkit on the condition that any implementation is designed to avoid impact, as much as possible, to first-home buyers.”

“The bank’s analysis had demonstrated that any such restrictions “would impact investors most powerfully.”

Market reaction

NZD/USD is challenging daily highs near 0.7130, underpinned by the above announcement, defying a buoyant US dollar. All eyes remain on the FOMC decision. The spot adds 0.20% on the day.