At the end of February, New Zealand's average house price was more than 50 per cent above the last peak in 2007.

The Reserve Bank has warned New Zealand's house prices could resume the recent rise as supply shortages continue.



On Thursday Reserve Bank governor Graeme Wheeler left the official cash rate at 1.75 per cent, as widely expected, saying the global economy continued to face a number of risks.



Wheeler welcomed a fall in the New Zealand dollar, and indicated house price rises had moderated partly due to lending restrictions, but warned price increases in the housing market could resume.

"It is uncertain whether this moderation will be sustained given the continued imbalance between supply and demand."

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ROBERT KITCHIN/FAIRFAX NZ Reserve Bank governor Graeme Wheeler is expected to leave the OCR unchanged this year.

At the end of February, New Zealand's average house price was more than 50 per cent above the last peak in 2007, although prices rose just over 1 per cent three months, with Auckland and Hamilton prices easing.

On Wednesday, Finance Minister Steven Joyce warned that a number of factors, including rising interest rates, an improved performance of other countries as well as an increase in supply could cool the housing market.

Joyce, who became Finance Minister in December, talked up the volume of construction, saying there was the largest amount of work in progress of all time.

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"There's undoubtedly a big [housing] supply response. We can debate about the size of it but it's the biggest thing we've seen in this country in real dollars," Joyce said.

Westpac acting chief economist Michael Gordon said the housing market did appear to have turned already.

"[W]e think that higher mortgage rates will have a lasting impact on house price growth, and that in turn will have implications for the strength of domestic demand and inflation pressures."

Most bank economists expect the Reserve Bank will leave the OCR unchanged all year. Kiwibank chief economist Zoe Wallis predicts the cash rate will be unchanged until mid-2019, unless there is a sustained improvement in the global economy.

The OCR influences the price at which Kiwis can borrow from banks, although a rise in global interest rates has diminished its influence in recent months.

While the OCR is at a record low, mortgage rates had been creeping up since the start of the year, on signs the US is poised to gradually increase interest rates.

Growth expected to bounce back

Wheeler said the economy was weaker than expected at the end of 2016, with figures released showing the economy expanded by just 0.4 per cent in the December quarter, well below the 1 per cent the Reserve Bank forecast in February.

"[S]ome of this is considered to be due to temporary factors," Wheeler said.

"The growth outlook remains positive, supported by on-going accommodative monetary policy, strong population growth, and high levels of household spending and construction activity."

While he welcomed a fall in the New Zealand dollar - down around 4 per cent since the last time the Reserve Bank reviewed interest rates "further depreciation is needed to achieve more balanced growth".