However, such strong growth in deposits is unlikely to continue.
The ongoing QE programme will continue to support deposit growth, but not to the extent seen last year.
With deposit growth expected to slow to some extent, lending growth is likely to slow too, with banks otherwise needing funds from other sources.
Although other funding options are certainly available (the RBNZ Funding for Lending Programme, for one), banks are likely to be a bit more cautious in an environment where deposit growth is slower, in order to manage their funding needs.
And even if bank funding is plentiful, at some point banks may start to be more cautious about lending terms if the economic outlook is looking more uncertain, or the housing market unsustainable.
A slowdown in lending growth and renewed loan-to-value restrictions are expected to see credit availability reduce to some degree at some stage, resulting in the emergence of a new headwind for the currently buoyant housing market.
On the other hand, strong business confidence and resilient investment intentions may see business credit demand start to improve from very low levels, though likely only very modestly given that the economic recovery is set to stagnate.
Super-low inflation no longer appears to be a certainty. Cost pressures are starting to emerge, especially as supply disruptions and rising freight costs pinch globally.
And domestically, firms are reporting higher costs and an intention to increase prices, which may see pockets of inflation start to develop.
Typically, “cost-push” inflation is not something to which the RBNZ responds, given that it can be quite short-term in nature and move independently of the overall business cycle.
In fact, cost-driven inflation can be bad for growth and has the potential to weigh on business sentiment if margins are squeezed or price rises impact demand.
But positively, cost pressures are starting to flow through into broader inflation expectations (figure 6). If this is sustained, it could lead to persistently stronger inflation outcomes, even once cost pressures ease.
Up until very recently, inflation expectations have been worryingly low, and the RBNZ has been concerned that this could see actual inflation persistently away from target.
To the extent that inflation expectations rise, this will directly improve outcomes for the RBNZ and reduce the case for more stimulus.
Figure 6. ANZBO inflation indicators.