The Reserve Bank's six-monthly Financial Stability Report warns that global uncertainty and subdued domestic growth mean risks to the financial system remain higher than in recent years, even as banks and farmers show resilience.
The Reserve Bank has released its latest Financial Stability Report, delivering a measured but cautious assessment of New Zealand's economic health. Governor Anna Breman said the global risk environment had worsened over the past six months as conflict in the Middle East threatened world energy supply. Domestically, the immediate effects were being felt through higher fuel costs for households and businesses — with transport, logistics, forestry, and fishing among the hardest-hit sectors.
While the economy had been recovering prior to the conflict, the Bank now expects a slower recovery path, with implications for job growth and debt servicing.
Housing market remains soft
The housing market continues to be characterised by broad softness, with national house prices below their November 2021 peak and broadly flat over the past three years. Auckland and Wellington are particularly affected, weighed down by elevated housing inventories, a soft labour market, and lower net migration. Parts of the South Island have seen stronger growth, but that has not been enough to move the national picture.
House prices sit around the top of the RBNZ's estimated sustainable range, which the Bank said suggests the risk of a correction is not especially elevated — though rising mortgage rates could still push prices further lower.
The mortgage market has seen some notable dynamics. Growth in mortgage lending has been subdued, but a period of unusually high refinancing activity late last year coincided with mortgage rates being near their lowest point. Banks competed aggressively for new business, with cashback offers to new customers reaching up to 1.5 percent of the loan balance — well above the typical 0.9 percent. Nearly three times the usual volume of mortgage debt switched banks in December. The RBNZ estimated this cost banks around $100 million, a small fraction of their annual pre-tax profits of roughly $10 billion.
Banks and farmers resilient
On the institutional side, the picture is more reassuring. The RBNZ said banks and farmers are well placed to manage economic shocks. Lower interest rates have been easing debt-servicing pressures for households with mortgages and for the commercial property sector. The system appears adequately capitalised to absorb a moderate deterioration in credit quality.
What this means for the outlook
The report identifies several channels through which external shocks could affect New Zealand: trade disruption, elevated uncertainty, and financial market volatility. Higher oil prices increase production and transport costs while adding to global inflationary pressure, which could keep interest rates higher for longer among major central banks — potentially tightening global funding conditions and suppressing demand for New Zealand's exports.
The RBNZ's overall message is one of resilience with caution. The financial system has buffers, but the combination of global uncertainty and subdued domestic growth means the environment remains more fragile than it has been in recent years.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.