OCR rise could be on the cards as house prices soar

Rising Auckland house prices could be flagging a rise in the interest-driving official cash rate (OCR), which the Reserve Bank has keep at a record low 2.5% for the past 26 months.

Economists in a New Zealand Institute of Economic Research (NZIER) survey released yesterday back up the wider consensus of others that the rate will be held at 2.5% until at least mid-2014.

The Reserve Bank will tomorrow release its monetary policy statement, widely expected to remain unchanged at 2.5%, despite a boost in construction and rapid rise in house prices.

Senior NZIER economist Dr Kirdan Lee said its ''shadow board'', of nine independent economists and businesspeople believes the Reserve Bank will hold the OCR, but cautioned Auckland house prices had continued to ''surge higher, risking a costly correction further ahead''.

''So, for the first time in 18 months, raising rates has more support than cutting interest rates,'' Dr Lee said in a statement.

Auckland's average house price was at a record $735,692, according to Auckland real estate agent Barfoot & Thompson. Three of its staff had sold more than 300 homes between them during the past year, at an average $721,000, The New Zealand Herald reported.

NZIER's principal economist, Shamubeel Eaqub, said the Reserve Bank should not raise the OCR yet, as inflation was low, the country's economic recovery was ''fragile'' and the exchange rate remained high.

''[The Reserve Bank] can and will use macroprudential tools to cool the frothy housing market soon,'' he said.

However, the Reserve Bank had to be ready to step in with an OCR increase, if it was needed to maintain financial and economic stability, Mr Eaqub said.

simon.hartley@odt.co.nz

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