The news out of New Zealand is good these days. The country’s Financial Stability Report November 2015 has just been released and the overall picture is positive.

According to the RBNZ report, the banking system holds capital and funding capacities in excess of the minimum requirements and is showing improved profitability while bank loans to households and businesses has increased. Domestic capital markets and the issuance of bonds by both financial and non-financial corporations are continuing to grow.

The central bank’s financial stability report led the markets to believe a rate cut would not be forthcoming, pushing the New Zealand Dollar to rally against the greenback. The RBNZ said “there is less scope for monetary policy easing to offset a sharp rise in funding spreads.”

Concerns Over Dairy and Housing

The report also noted the financial stability risks that were still present in the economy, especially highlighting the health of the housing and dairy sector. Home prices in Auckland now exceed gross income by nine times and the cities of Hamilton and Tauranga have reported that the rate of inflation for properties in these areas is up 18 and 14 percent year-over-year respectively.

There is considerable uneasiness by the central bank that any correction in housing or the dairy industries would damage the economy’s financial stability due to bank’s extensive exposure in these sectors.

New Zealand’s dairy industry, its main export, has been hit hard by the decrease in Chinese demand and the drop in commodity prices and the RBNZ is concerned that indebted dairy farms may be even more affected if the commodity’s price continues to fall.