asset prices more directly, by affecting the supply and cost of high lvr lending as well as reducing the riskiness of bank loan portfolios. high lvr lending, as reflected in mortgage lending to borrowers with less than a 20 percent deposit, has constituted around 30 percent of new mortgage lending in recent months – up from 23 percent in late 2011. this high lvr lending is a significant factor behind the buoyant housing demand in some regions. over recent months, the reserve bank has been consulting with the banks on the use of macro - prudential instruments and on how lvr restrictions could be implemented in new zealand. today we are announcing the introduction of speed limits on high lvr lending with an implementation date of 1 october 2013. these are designed to help slow the rate of housing - related credit growth and house price inflation, thereby reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy. under the lvr “ speed limit ”, banks will be required to restrict new residential mortgage lending at lvrs of over 80 percent to no more than 10 percent of the dollar value of their new housing lending flows. however, some loans will not count towards the banks ’ use of the speed limit. these include housing new zealand ’ s welcome home loans, bridging loans, refinancing of existing loans and high – lvr loans to existing borrowers who are moving home but not increasing their loan amount. allowing for these exemptions, we estimate that the 10 percent speed limit will effectively limit the banks ’ high - lvr lending flows to about 15 percent of their new residential lending. bis central bankers ’ speeches banks commonly issue mortgage borrowers with pre - approvals, which represent a firm commitment to provide housing finance and may be valid for up to six months. banks raised the issue of these pipeline approvals in responding to the reserve bank ’ s consultative document so, as an initial transitory step, we are allowing banks to meet the 10 percent speed limit on high lvr lending measured as an average rate over a six month period. thereafter, the speed limit for banks with lending in excess of $ 100 million per month will apply to the average rate over rolling three - month windows, as originally proposed. however, we would expect the banks to modify their approach to issuing pre - approvals, in order to ensure that they fall within the 10 percent “ speed limit ” on an ongoing basis. banks with mortgage lending

graeme wheeler : the introduction of macro - prudential policy speech by mr graeme wheeler, governor of the reserve bank of new zealand, to otago university, dunedin, 20 august 2013. * * * new zealand ’ s economy is now one of the most rapidly growing among the advanced economies. growth is likely to remain strong and become more broadly based over the next two years, particularly as construction activity in christchurch, auckland and elsewhere gathers momentum and provides further stimulus to the manufacturing sector. our forecasts in the june 2013monetary policy statement, which are currently being reviewed for the next statement in september, suggested that in 12 months ’ time the economy could be growing at just over a 3 percent annual rate, with the unemployment rate declining towards 5 percent and annual cpi inflation back within the 1 to 3 percent target range. these summary indicators, however, disguise the nature and complexity of the adjustments taking place in new zealand. included among them are the impact of the monetary and liquidity policies of major central banks, domestic economic policy settings, the powerful long - term global structural changes affecting our economy, and the effects of natural events such as earthquakes and drought1. just as firms and households develop strategies to adjust to these forces, the reserve bank also needs to respond to them in meeting its goals of price stability and financial stability. i will turn to two of the largest forces influencing our economy – our over - valued exchange rate and the over - valued housing market. 1. the over - valued exchange rate our exchange rate is over - valued relative to what would be sustainable long - term in the absence of sizeable increases in our terms of trade and productivity. against many of the world ’ s major currencies, the new zealand dollar is positioned in the top decile relative to its historic experience. at these levels, the exchange rate is a considerable headwind for new zealand ’ s exporters and those that compete with imports, although it has benefited purchasers of imported goods and services and contributed significantly to the current low level of inflation. our real exchange rate is about 16 percent above its 15 year average2. it is important to look at both long - standing structural and more recent cyclical factors when considering the reasons for new zealand ’ s high real exchange rate – although at any time the relative strength of these factors can change. these were referred to in a recent address delivered to the institute of directors in auckland on 30 may 2013 : forces affecting the new zealand economy and policy challenges around the exchange