While positive economic indicators abound in the economy, fish-hooks remain with New Zealand's troublesome housing sector, with the Reserve Bank and Business New Zealand clashing over the controversial loan-to-value ratios (LVRs) being imposed on banks.
On the eve of formal introduction of the LVRs on Tuesday, Business New Zealand is questioning its application as being a ''stop gap'' measure to delay raising the record low interest-driving official cash rate.
In the Reserve Bank's annual report yesterday, Governor Graeme Wheeler said ''the two most significant challenges'' facing the bank were the overvalued New Zealand dollar and overvalued housing market.
Business New Zealand economist John Pask said views were mixed on the ''relative merits, or otherwise'', of the Reserve Bank's LVR, which the bank had been careful to justify as ensuring the ongoing strength of the country's financial system.
''It is hard not to interpret this latest move as simply a stop-gap measure to delay raising the official cash rate,'' Mr Pask said in a statement yesterday.
Mr Wheeler said while the high dollar benefited import purchasers and kept inflation levels low, it was ''creating difficult headwinds for New Zealand's export and import substitution industries''.
LVRs are one of four ''macro-prudential tools'' developed by the Reserve Bank, and from Tuesday banks must have a maximum exposure of only 10% of their overall lending book of loans to customers with cash deposits of less than 20%.
Mr Wheeler said the macro-prudential tools were required to reduce the risk of a ''substantial downward correction'' of house prices which would damage both the financial sector and wider economy.
''These are designed to help slow the rate of housing-related credit growth and house price inflation.''
The Reserve Bank's main concerns were that rapidly increasing house prices ''increase the likelihood'' of a ''significant and disruptive'' fall in prices in the future.
While an economy might be growing close to its growth potential, experiencing sound fiscal policy and price stability, the global financial crisis demonstrated economic and financial risks built up for several reasons, he said.
Mr Pask cautioned that high household debt was a continuing issue.
''When interest rates rise again, the cost of servicing high debt levels will adversely affect households.
''It will also likely impact on the New Zealand dollar to the detriment of exporters.''
Mr Wheeler said New Zealand's house prices, in comparison to household disposable income and rents, were high by international standards.
Mr Pask highlighted construction, global commodity prices, high consumer and business confidence and improvements in the economies of Australia, China and the United States as all boding well for exporters.
''Data coming out of the major world economies shows recent improvement, which is good news for New Zealand exporters.''
