REFILE-UPDATE 2-NZ cenbank to tighten mortgage lending as prospects for negative rates dim

WELLINGTON, Nov 25 (Reuters) - New Zealand's central bank on Wednesday said it would re-impose mortgage curbs next year and work with the government on fixing a housing crisis, reinforcing views that deeper cuts to interest rates into negative territory are now less likely.

The government on Tuesday sent a letter to the Reserve Bank of New Zealand (RBNZ) asking it to consider factoring property prices as part of its policy remit amid broad concerns about housing affordability.

RBNZ Governor Adrian Orr said the central bank would consider the government's proposal but would need to assess the impact such a change would have on its objective of maintaining financial stability.

"We intend to work with the government in a rapid, constructive, open manner on assessing longer term solutions on housing affordability," Orr said in a news conference.

His comments came as the RBNZ announced the planned re-imposition of mortgage lending curbs, called loan-to-value ratio (LVR) restrictions, by March next year.

New Zealand is bouncing back sooner than expected from a recession, but home prices have hit new highs prompting the government's proposal for the central bank to include house prices in its monetary policy remit.

The New Zealand dollar jumped to its highest since mid-2018 on Tuesday, as the government's letter was seen by markets as reinforcing expectations the central bank will resist moving toward negative interest rates.

"Given the news flow, odds are increasing that the RBNZ will not take the OCR negative...," ANZ Bank Chief Economist Sharon Zollner said in a note.

When asked about negative rates, Orr said RBNZ was operationally ready to implement it, if it was warranted.

RBNZ pumped NZ$28 billion into the banking system this month raising concerns this would further inflame house prices that were already heating up due to historically low interest rates.

Orr defended the bank's moves to stimulate the economy saying housing has been a long-standing issue for policymakers, but that the alternative would have been rising unemployment and more uncertainty as COVID-19 continues to impact economies globally.

"The economy has proven to be one of the most resilient on planet earth. So that's a fantastic outcome," Orr said.

(Reporting by Praveen Menon; Editing by Tom Brown and Sam Holmes)