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New Zealanders are starting to pile up the debt again.
Figures out this afternoon show why Reserve Bank governor Graeme Wheeler gave an unusually sharp nudge to households about debt levels this morning.
Private sector credit growth for the year to December rose 3.8%.
While clearly still a long way from the 10%-17% annual credit growth levels seen between 1998-2008, they start from a much higher base level of debt.
Private sector debt trebled between 1998 and 2008, and while it stopped growing so fast since the global financial crisis it has not actually declined (see graphs one and two).
This morning’s Reserve Bank statement, which contained the expected no change decision on the official cash rate, also contained unusually strong warnings about household credit levels and the risks these pose to financial stability.
“House price inflation has increased and we are watching this and household credit growth closely. The bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply,” Mr Wheeler said.
The Reserve Bank has not had to concern itself with these matters for some time. Since late 2008 New Zealanders have become net savers for the first time in at least two generations, and credit growth has been well below the growth in nominal GDP.
“Deleveraging”, as the economists call it, is seen as necessary after the unprecedented growth in debt levels in the 10 years between 1998-2008. Private sector debt trebled in that time (see graph one).
Since then, though, prudence has been the watchword. There were signs of relaxation in the November credit figures released just before Christmas: the question was whether this was a blip or the start of a return to the ways of old.
The largest credit growth is in the agriculture sector, rising 5.1%. Borrowing for houses is up 3.7%, while business and consumer debt are up 2.5% and 2.4%, respectively.
Other figures out today indicate this is not a blip.
Dun and Bradstreet’s survey of consumer credit intentions show 40% of New Zealanders contacted expect to increase their credit limits over the next three months. The most recent survey showed only 25% had those intentions.
Mr Wheeler is to give a speech to Canterbury business tomorrow lunchtime which is likely to expand on this and other economic issues.
The Reserve Bank is looking at different regulatory tools to target excessive credit growth and Mr Wheeler’s statement today strongly hinted they could be used to complement the OCR and be targeted specifically at housing.