15 Jun 2012

Bollard rules out another housing boom

6:36 am on 15 June 2012

Reserve Bank Governor Alan Bollard says low mortgage rates are playing a part in recent house price rises but is seeing no evidence of a house price bubble emerging, despite record low interest rates.

Dr Bollard says the recent round of cuts in fixed mortgage rates by banks was putting some upward pressure on house prices.

However, he does not think it is likely to result in a housing price boom, although it is something the central bank is watching closely.

Dr Bollard says the Reserve Bank is forecasting inflation to remain within its target band of 1% - 3% and there are no signs yet of higher house prices fuelling higher inflation.

He says it is possible that the rebuilding of earthquake-damaged Christchurch could put pressure on construction costs, pushing up house prices further - but believes there is little evidence yet of that happening.

Dr Bollard's comments followed the bank's decision on Thursday to leave the official cash rate unchanged at a record-low 2.5%.