Prime Minister John Key says he would not be surprised if mortgage interest rates dropped below four per cent but did not believe that would further fuel Auckland's housing market.

Mr Key's comments followed Reserve Bank Governor Graham Wheeler's decision to drop the official cash rate to 2.75 per cent. Mr Wheeler also indicated further drops were likely.

Speaking from Port Moresby, Mr Key said it would benefit home owners.

"There's every chance you're going to see mortgage rates with a three in front of them. They are phenomenally low levels for home owners and businesses to borrow money."

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He said mortgage rates had been "very attractive" for an extended period already so any impact on the housing market would be at the margins.

He said over the past two months house prices in Auckland were more stagnant and there was a greater amount of construction underway to help meet demand.

He claimed Mr Wheeler was "upbeat" about the economy when he met with Mr Key recently, but had discussed uncertainty around the extent of the slow-down in China and the possible impact on farmig of the forecast El Nino weather pattern.

The Reserve Bank still had some headway to move further, which meant New Zealand was in a stronger position than many other countries.