Reserve Bank Governor Graeme Wheeler has signalled the bank could introduce restrictions on low deposit mortgage loans as early as August to help curb rampant house prices in Auckland.
The bank on Thursday kept the Official Cash Rate unchanged at 2.5% and expects to keep it at the record low for the rest of the year.
Governor Graeme Wheeler said economic activity is rising and house prices in some areas are surging.
"Rapid house price inflation persists in Auckland and Canterbury. As previously noted, the Reserve Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of the supply response," he said his statement.
Mr Wheeler said he was considering new rules to restrict the proportion of mortgage loans to people with low deposits in order to dampen the housing market and avoid raising interest rates when the economic recovery remains uneven.
"We're giving serious consideration to it, given the house price pressures up in Auckland and elsewhere."
Mr Wheeler signalled these rules could be in place as early as August.
The Governor said inflation was low and, despite having fallen during the past few weeks, the New Zealand dollar remained overvalued and was hurting exporter returns.
The bank expects GDP growth to accelerate to about 3.5% by the second half of 2014, and inflation to rise towards the midpoint of the 1% - 3% target band.
Mr Wheeler said that given this outlook, the bank expected to keep the OCR unchanged through the end of the year. The rate has been at 2.5% since March 2011.
PM says first time home buyers won't miss out
The Prime Minister says proposed new rules to restrict low deposit loans will not mean first time home buyers will miss out.
The Reserve Bank is proposing the use of a so-called speed limit approach, which would restrict the proportion of low deposit loans to new borrowers, rather than ban them altogether.
Some fear first time home buyers could be excluded from the market, but John Key says he's confident the approach will help cool Auckland's housing market, and ensure people can get on the property ladder.
Mortgage advisor Jenny Campbell says putting such restrictions on banks may be overkill and could end up hurting first home buyers.