The International Monetary Fund has expressed support for the Reserve Bank of New Zealand's use of its speed limit on low deposit lending to improve financial stability. The IMF released its Article IV assessment of the New Zealand economy, including its support for the RBNZ's tighter monetary policy and a reiteration that banks' reliance on international funding was a risk for the New Zealand economy.The IMF said it supported the Reserve Bank's "tight" limits on high loan-to-valuation ratio mortgage lending, pointing to recent data suggesting the measures had cooled mortgage lending. "More generally, the available tools under the new macro-prudential policy framework should be viewed as a complement to macro-economic and micro-prudential tools, used sparingly and with cautions, and primarily with the objective of limiting the build-up of 'system-wide' risk," it said.More broadly, the IMF said New Zealand's financial system remained sound. Banks were well-capitalised and met the new Basel III minimum capital requirements, while liquidity buffers were solid. The IMF said New Zealand's house prices remained elevated by international and historical comparisons and there was a risk of 'overshooting' prices that corrected suddenly if there was an external shock, such as a sharp slowdown in China's economy."Many of the risks are closely linked - for example a sharp slowdown in China could weaken growth prospects in Australia, triggering a broad-based fall in demand for New Zealand's exports, and lead to a sudden decline in house, farm and commercial real estate prices," the IMF said, noting however it did not see such a China slowdown as imminent."This in turn could weaken consumer demand and negatively affect banks' balance sheets and their willingness to lend," it said."The downside macroeconomic impact in a scenario where shocks compound each other could be large."