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Governor’s parliamentary debut ends with a whimper

Reserve Bank head Graeme Wheeler's first appearance before a parliamentary select committee descended into farce when the room was cleared to let politicians argue for more time with the new governor.

Finance and expenditure committee chairman Todd McClay turfed everyone out, including Mr Wheeler and his officials, when opposition MPs opposed his move to wrap up proceedings at 1pm in Wellington after starting 15 minutes late.

Several minutes later, NZ First leader Winston Peters and Labour finance spokesman David Parker emerged saying the hearing was over and Mr Wheeler headed back to his office.

Mr Wheeler was making his first appearance in front of a parliamentary committee as central bank governor, having released the bank's six-monthly financial stability report earlier today.

Before being ejected, he told politicians that quantitative easing policy undertaken by central banks in the US, Japan and Europe were "a sign of desperation" and that New Zealand had scope to cut the benchmark interest rate if needed.

"If the issue is should we move to quantitative easing in New Zealand, we don't think that's something that deserves serious thought at this point," he said.

He quashed suggestions lowering the official cash rate would rein in the strength of the New Zealand dollar, saying the currency is more closely aligned with the nation's terms of trade over the long term than interest rate adjustments.

"It's hard at this point to see any factor that would lead to a major depreciation in the exchange rate in the short term," he said. "There's no easy solution out there that simply says cut interest rates 25 pips and the exchange rates will come off 10%, that just doesn't work."

Mr Wheeler backed the level of local bank profits, saying lenders' return on assets was about average among developed nations and low in terms of a return on equity. He did not agree with the view that high bank profits are the price New Zealand pays for financial stability.

"The banking system here as we see it at this point is healthy, it's sound and it makes what we believe acceptable rates of return that aren't out of line with international comparisons," he said. "We see a lot of competitiveness and a lot of efficiency."


Comments and questions

It appears that Wheeler is simply a clone, a chip off the old Bollard as it were.
So we can expect inaction in the face of an Auckland housing bubble (spreading ever outwards) and a re-run of ignoring mounting household/ farming debt. Tough decisions (such as reining back the banks) will not be made. How we imagine for one moment that we have an independent central bank is beyond me. Wheeler is, and will be, the plaything of the banks.

Funny how Crowd Pleaser attacks Wheeler because he does not follow his views. Wheeler is the proverbal outsider in NZ and was a surprise appointment when most expected the current deputy to get the job. If anyone would be independent from Bollard's views it would be Wheeler. To blame the RB is unfair also. The Auckland bubble relies on Loopy Len and his ilk putting undue limits on the city's expansion and so increasing the price of land to ridiculous levels and on Fletchers monoploy position in building supplies pushing up costs to be 55% higher than Aus. As for the banks, Wheeler spelt it out for you, the return they make on their capaital is not excessive compared to any other comparable country.

When will you people learn - the housing bubble begins and ends with cheap credit, all else is secondary. Answer me this - when house prices were falling between late 2007 and mid 2009 was it a) because cheap credit was rationed (initially via high interest rates or then by the credit crunch) or b) because suddenly a lot of cheap land was available and a stack of houses were built (your thesis)?
Now we are back in the land of cheap credit, and surprise, surprise guess what is happening......

Precisely. Interest rates and commodity prices are the opposite ends of a see-saw. It's that simple.

Well done Henery Horse. At least some understands the issue, we face a stark choice control the price of housing in Auckland and sacifice the productive sector. or let the price of housing free wheel and have a prosperous productive sector. We cant have both under the present 'riding instructions' for the Govenor.

Mr English has instructed Mr Wheeller to ride to beat the Auckland housing market. Auckland wins Provinces loose

The National Jonkey Government has made that decision, simple as that!!

good bye productive sector by a 1000 cuts

There can be other causes. Remember Rowling's speculation tax in the 70s? Dried up the market overnight, and wallop, a huge bubble in housing and rents. Those who call for a capital gains tax should look take heed.

Talk about trying to generalise from the specific! Anyway, what's your 'solution' - push up interest rates to the point where the cost of borrowing is prohibitive? That'll certainly dampen Auckland (and possibly Chch) house prices, shame about the economy though...

Anything that increases supply to home owners and landlords will help of course . As interest rates inevitably rise, prices will fall., People will spend only what their pay packets allow. They can't exceed that. So higher interest means they have less to spend on interest.. So prices will falll, but to those with small deposits, outgoings, hence affordability, will not change.

And what idiot government would ever get voted onto power or stay in power if they slashed the equity of people's homes. I mean who would vote for a politician who said "I will work to ensure your home is worth half what you paid for it (and owe on it) in three years time, and also make sure your mortgage interest doubles".

Believe it or not Bunter, it is better to buy real estate when interest rates are high. $200,000 borrowed at 5% costs the same as $100,000 at 10%, that is $10,000 per annum. but incurs half the debt. And it is the number of people who can pay $10,000 per annum that governs the market price. You can see that effect plainly when anything is subsidised - the price rises.

But surely the competitveness is really no different from that of the fuel retailers? A nice easy as she goes arrangement which trades off true competition for stability. Hence second tier lenders do all the hard work and big 4 banks seek to grasp low hanging fruit.

The sad thing about all this really is that for some years confidence in the Reserve Bank as an institution for action if required has been dwindling. They seem to have a back room, cigar smoke attitude which for some years has been seen as being quite inadequate by a number of people qualified to speak regarding such. The concern is Mr Wheeler will be no different. There is no glory in being someone elses homeboy!!!

just up the minimum deposit required to buy a house . Somewhere between 20 and 30 % will sort the property speculators out ,and still keep low interest rates for productive business.

How bout we look at the ability of a couple to earn and therefore qualify for a mortgage based on two incomes. Perhaps back to the 70s when only the male earned income and therefore only one person was responsible for the mortgage. Ie we would not have the same demand level for especially older houses ( and would require less adjustment when families drop to one income). It is this irresponsible access to credit that means we are paying a lot more than ever for entry level worn out old houses.

I agree with bruno 32, If the Reserve bank / Government did the right thing, they should regulate against banks so they only lend on about 70-80% of the registered value of a property. Interest rates would remain stable and buyers could afford to buy a house. These crazy Auckland prices would have to come down to meet the market and the investors/speculators would be pushed out.
It will never happen, tho, as most politicians own numerous rental properties and it is in their interests to see prices go up.