Central banks find post-crisis bubble tool doing the job

Bloomberg

Central bankers are starting to see promising results from one of the recent additions to their monetary policy toolbox. Lending curbs to stem financial risk — so-called macroprudential limits — have helped slow risky borrowing and temper property price bubbles in countries from New Zealand to Canada, a host of financial stability reports showed this week.
While there hasn’t been uniform success — Hong Kong’s housing market shows no signs of cooling — it’s given central banks some breathing space to be more gradual in tightening monetary policy.
“If you think about lessons from the global financial crisis, macroprudential is one of the key
lessons,” said Steven Bell, chief economist at BMO Global Asset Management in London. “It was a tool of counter-cyclical credit tightening, and I think that’s going to be a permanent feature.”
Asia-Pacific nations have recently been among the boldest in trying to curb the effects of ultra-easy monetary policies. In New Zealand, where tighter mortgage lending rules helped to curb soaring property costs, the central bank is now ready to reverse restrictions from Jan. 1, acting Governor Grant Spencer
said, adding that price pressures will continue to moderate.
Macroprudential tools came of age in the aftermath of the financial crisis as central banks turned to them to cool markets without bludgeoning them and hurting overall economic growth with the blunt instrument of interest rates. The hope is, if successful, rates
can be kept lower for longer to support the economy.

HOUSING RISKS
Australia’s measures are biting, with a housing boom all but over as property prices in Sydney decline. The Reserve Bank of Australia sees tightening lending standards as necessary medicine that’s already making the balance sheets of banks and borrowers healthier, although a record debt overhang for households remains a worry. Risks in the housing market “have not gone away, but the fact that they are not building at the rate they have been is a positive development,” Reserve Bank of Australia Governor Philip Lowe said in a Nov 21 speech.
China is set to see the first decline in home sales since 2014, owing to interventions over the past year-and-a-half to cool the property market, including tighter down-payment requirements and restricting non-resident buyers. Officials are keeping up the enhanced rules, betting that they will help ensure the world’s
No. 2 economy can manage a controlled cooling without triggering a growth slump.

CURBING VOLATILITY
In Southeast Asia, Singapore earlier this year tweaked some property curbs that were meant to cool the market, helping reverse a housing slump. The Monetary Authority of Singapore, in its financial stability report released, said enhanced post-crisis restrictions on banks in South Korea and Hong Kong — such as limits on cross-currency swaps — helped reduce vulnerabilities in the region. Lending curbs have also won the backing of the Bank for International Settlements, which found in a September report that among 64 advanced
and emerging economies, those that more frequently use the tools typically enjoy stronger and
less volatile growth.