Thursday, June 26, 2014

Will UK follow NZ on interest rates? | Housing seems to be key

The governor of the Reserve Bank of New Zealand is Graeme Wheeler, pictured above.

Recently, we had occasion to remark on the possibility that the Bank of England Monetary Policy Committee (MPC), under the guidance of its governor, Mark Carney, might feel it necessary to raise interest rates sooner than had been expected.

New Zealand has, of course, already embarked on raising rates. It became the very first of the developed countries to do so in the aftermath of the Global Financial Crisis, when rates were lowered in all jurisdictions, sometimes to levels just a little above zero percent. Will the UK be the next to join this club?

Housing seems to be key

One of the big worries for all central banks is the danger of a residential property bubble, brought about by those same low interest rates.

Yesterday the Bank of England announced curbs on lending for housing, the so-called macro prudential measures, which limit loan to value criteria, among other things.

Here’s the thing: New Zealand also led the world in this type of measure, some time before it started to raise rates. Is there a pattern here? Will the UK be the next developed economy to tighten?

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