A quarter of a century after pioneering inflation targeting, New Zealand’s central bank is recommending the use of additional tools to control prices as its influence over long-term domestic borrowing costs wanes.

Central banks may need to turn to macro-prudential tools “to help prevent asset price booms and complement monetary policy,” Reserve Bank of New Zealand Governor Graeme Wheeler has said.

Faced with an inability to control longer-term yields, and fearful of driving up their currencies by raising short-term rates, some central banks have turned to macro-prudential tools to tackle housing bubbles fanned by cheap loans.

The RBNZ introduced limits on low-deposit mortgage lending last year to curb New Zealand’s rampant housing market, a tool it estimates is the equivalent of as much as a 50 basis-point increase in its official cash rate.

House-price inflation in the year through October was the slowest since April 2012, according to Real Estate Institute data.

Source: Bloomberg