The Reserve Bank is likely to introduce even more restrictive mortgage lending restrictions as the housing market takes off again, Westpac chief economist Dominick Stephens says.

Westpac has upgraded its forecast for national house price inflation from six per cent to 11.5 per cent.

Low interest rates look like one of the key drivers for the resurgence in the market, Stephens says in his latest monthly commentary.

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Meanwhile the Reserve Bank can't raise interest rates and is still under to pressure to cut them in order to boost inflation back to the required target of around two per cent. Inflation was just 0.1 per cent in 2015 and first quarter data due Monday isn't expected to show much change.


"If house prices continue on their current trajectory much longer, the RBNZ will start thinking about another round of mortgage lending restrictions," Stephens says.

The slowdown that followed the introduction of tax and mortgage lending regulations late last year was always expected to be temporary effect but the extent of the rebound in March was a surprise, he said.

"Our take is that New Zealand's housing market is reacting to the big drop in mortgage rates over the past year."

REINZ data this week showed housing market turnover was up 11.3 per cent in Auckland, and seasonally adjusted prices were up 3.4 per cent.

"Clearly, the March housing data will be a mark against the idea of cutting the OCR again.

But ultimately the RBNZ must adhere to its inflation target, and there are other factors, such as the strong exchange rate, that are currently suppressing inflation."

On that basis the Bank's "most likely reaction lies in macroprudential policy," he said.