Governor Graeme Wheeler said, in his first Monetary Policy Statement, that the Reserve Bank and The Treasury are working on a Memorandum of Understanding about the tools that could be used in the future to manage asset bubbles without hurting the wider economy.

He said they had reached an agreement and the MoU was presented to FInance Minister Bill English yesterday.

As well as loan-to-value restrictions, the bank is looking at introducing further changes to the core funding ratio, a counter-cyclical capital buffer, and risk weightings on asset classes.

The Auckland housing market in particular is showing signs of increasing strength, with prices up 12% year-on-year. But the high dollar is hurting exporters and a hike in interest rates could exacerbate that.

Wheeler said he had been doing a lot of work around loan-to-value restrictions, talking to bank boards.

He said he did not think there was a house price bubble in New Zealand yet, because nationwide price inflation was only about 5% per year and credit growth was about 2% or 3%.  “At present we don’t see that we would need to use macroprudential instruments.”

But he said, had the bank had them at the time, they could have been useful during the housing boom of 2002 to 2007.

“If we felt there was an asset price bubble gathering momentum and threatening to do damage, we would look at macroprudential tools in the first instance.”

Wheeler said housing shortages and population pressures were driving Auckland house prices up. But he said there were signs of more housing stock coming on to the market.

An indicator of an asset bubble would be when house price growth accelerated nationwide, he said.