Faced with a housing bubble similar to that of the US 5 years ago, New Zealand has tried a novel way of controlling the bubble without raising interest rates and jeopardising sluggish 2.5% GDP growth. In a strategy that has recommended for Australia, The Sydney Morning Herald has reported that the New Zealand central bank is trying macroprudential policies following the failings of broad monetary policy combined with microprudential regulation. The innovative controls in New Zealand affect leveraged lending, where only 10% of new loans can have a loan-to-valuation ratio above 80%. This will help limit risky debt, a lot of which was securitised in the US, creating the toxic assets that played a central role in the GFC. (VIEW LINK)
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