UPDATE 3-RBNZ sees less financial risks, but still wary about house prices | Reuters

* RBNZ says global and domestic risks have lessened

* Any resurgence in house prices would be a concern – RBNZ

* Paper on debt to income restrictions due in weeks – RBNZ
(Updates with central bank comments and background)

By Ana Nicolaci da Costa and Charlotte Greenfield

WELLINGTON, May 31 The Reserve Bank of New
Zealand (RBNZ) said on Wednesday risks at home and abroad to the
country’s financial system had receded in recent months, but it
remained wary of any rise in house prices or global
protectionism.

While the global economic outlook had improved and domestic
house price growth slowed, political uncertainty in the world
remained high and the rate of housebuilding in New Zealand was
insufficient to meet demand, it said in its half-yearly
Financial Stability Report.

The central bank said it would soon release a consultation
paper proposing the addition of restrictions on high debt to
income loans into its macroprudential arsenal to combat the risk
of a sharp downturn in house prices. It said it had no immediate
plans to use such tools even if they became available.

“The Reserve Bank would not apply it at this stage, given
that LVR (loan-to-value ratio) restrictions appear to be
mitigating housing risks,” the RBNZ said in its report.

“Should high house price growth return and the proportion of
housing lending at high DTI (debt-to-income) ratios remains
high, a DTI restriction could be warranted.”

The New Zealand dollar was largely unchanged,
inching down to $0.7092 immediately after the release from near
three-month highs of $0.7097. The currency was trading around
$0.7089 by 0425 GMT.

The central bank reiterated that pockets of the dairy sector
were overly-indebted, while global uncertainties remained high.

“I think there’s still a great deal of uncertainty about
where the U.S. might go on trade policy,” RBNZ Governor Graeme
Wheeler told a news conference. “But it’s not just the U.S.
There (are)…

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