RBNZ to rein in housing boom with lending limits

New Zealand's central bank is moving to quell the country's housing boom by restricting the amount of money property investors can borrow, paving the way for another cut in interest rates.

The Reserve Bank will require investors across New Zealand to have a deposit of at least 40 percent, it said in a statement Tuesday in Wellington.

The new rule, which tightens an existing requirement that investors in Auckland have at least a 30 percent deposit, will be introduced Sept. 1, the RBNZ said.

New Zealand's dollar fell as markets bet Governor Graeme Wheeler will now be free to respond to persistently weak inflation by cutting the official cash rate to a record-low 2 percent on Aug. 11. He has been reticent to lower borrowing costs for fear of stoking housing demand. "The intention to put new lending restrictions in place means one potential roadblock to responding to the weak inflation environment will be reduced," Nick Tuffley, chief economist at ASB Bank in Auckland, said in an e-mailed note. The announcement "reinforces the likelihood of the RBNZ cutting in August, given the very tight timeline proposed for implementing the added restrictions," he said. The New Zealand dollar fell 0.8 percent to 70.58 U.S. cents at 11 a.m. in Wellington from 71.17 before today's announcement. There's a 78 percent chance of a quarter-point rate cut next month, according to swaps data compiled by Bloomberg. The odds have increased since a report Monday showed consumer prices rose 0.4 percent in the second quarter from a year earlier less than the RBNZ forecast and the seventh straight quarter the gauge has been below the central bank's 1-3 percent target range.