FXStreet reports that economists at Rabobank note that NZD/USD has jumped after the Reserve Bank of New Zealand (RBNZ) considered adding house prices to its mandate.

“New Finance Minister Robertson has proposed adding house prices to the central bank’s remit. In other words, not only would the RBNZ have to keep CPI around 2%, but it would also have to keep house price inflation stable.”

“Lower rates are needed to try to keep inflation up but lower rates push house prices through the roof, and so the opposite is needed. What’s a central bank to do? Of course, there are always macro-prudential measures to limit mortgage lending. Yet then one ends up flattening the property market and/or reducing first-time buyers’ ability to get a home loan, and a lot of the time the property market IS the economy, meaning that rates then need to go even lower, and macroprudential measures become even tighter. 

“In the short-term, expectations of negative RBNZ rates have withered and NZD is up, as it logically should be – which is just what exporters don’t want to see, of course, and leads to even more reliance on domestic demand and the housing ‘wealth effect’.”