12 Mar 2013

Reserve Bank likely to highlight drought and house prices

10:03 am on 12 March 2013

Rising house prices and the emerging drought are likely to be two key concerns raised by the Reserve Bank at its interest rate decision on Thursday.

Most economists believe the central bank will keep the Official Cash Rate at its record low of 2.5% until at least early next year.

Latest figures from Quotable Value show house prices hit a record high in February. In Auckland, property prices rose more than 10% in the last year.

There are predictions the drought will cut 0.5% from the country's GDP this year.

Deutsche Bank chief economist Darren Gibbs says while the global outlook has improved, there are several downside risks that the Reserve Bank is likely to mention.

He says risks include the possibility that the exchange rate could continue to run high and that there is no rain over the next couple of months which would make a bad drought situation even worse.

Mr Gibbs says housing sales have not increased a great deal in the last few months and household credit growth seems to have stabilised at around 0.4 - 0.5% per month.