House price rises cause concern for Central Bank

The Central Bank this morning expressed its concern about the continuing property boom in the Republic and said a "significant slow down in the rate of increase in mortgage credit" is necessary to limit the increase in households' debt to income ratio.

In its first Quarterly Bulletin for 2004, the Bank expresses its optimism over the "reasonably strong signs of recovery in the international economy" although it points out that the "pace of recovery in the euro area is lagging behind the other major economies".

It says the prospects for the Irish economy are "reasonably positive" at present.

In the Bulletin the Bank  forecasts an increase of 3.75 per cent in Ireland's GNP for 2004 and an increase of 3.5 per cent in GDP for 2004.

The flexibility and resilience displayed by the Irish economy over the past few years have helped our prospects, the Bulletin repots, adding that the "continuing decline in Ireland's inflation rate is another satisfactory development".

However, it says, the composition of our inflation rate is "still a cause for concern".

"While the reduction in inflation has been quite substantial and relatively rapid, there is still some way to go before it could be said that the economy has 'bought in' to a culture of price stability", it says.

As previous Bulletins have reported, the State's competitiveness has worsened significantly over the past two years and the Republic's  competitiveness has disimproved by about 15 per cent since joining the euro.

"The fact that Ireland's absolute price level is now substantially above that of the euro area, the US and UK, our main trading partners, is of major concern.  Therefore, a key policy objective must be to restore competitiveness," it says.

The bulletin expresses its concern about house price developments. It points out that the increase in house prices has continued despite more housing units becoming available.

The growth in residential mortgage credit has averaged 25 per cent for most of last year, and "it is clear that a significant slow down in the rate of increase in mortgage credit is necessary in order to limit the increase in households' debt to income ratio.

"However, with so much demand satisfied in recent years, it is expected that the housing market must be approaching balance, with a dampening effect on house price increases.