Alarm Bells will be ringing for the Reserve Bank after May delivered a ''whopping'' $1.5billion growth in mortgage lending, with total New Zealand home lending now topping $202 billion.
Some economists are now picking up to three more cuts to the interest driving official cash rate (OCR) this year, back to the record low of 2.5%.
The Reserve Bank is juggling a double-edged sword, its low OCR fuelling Auckland's heated housing bubble but assisting the wider economy to offset dairying's downward spiral, which is stripping cash from dairy farmers, regional economies and overall trade receipts.
ASB senior economist Nick Tuffley said overall the country's credit growth was running at its fastest pace since the global financial crisis hit during 2008-09.
''Mortgage lending had a whopping month in excess of $1.5billion of net lending growth,'' Mr Tuffley said this week.
However, following the eighth consecutive decline in the global dairy auction this week, of 6% overall and 10.8% to the crucial whole milk powder component, Mr Tuffley predicted the Reserve Bank would cut the OCR a further 75 basis points; in July, September and October, to a low of 2.5%.
He said key reasons were the weakening in the dairy auction, business confidence and consumer confidence in dairy, and now a revised review that there would be a slower recovery in dairy prices.
''There are some uncertainties around when or if the last cut [October] cut will be delivered,'' Mr Tuffley said.
Similarly, ANZ chief economist Cameron Bagrie said there was little on the horizon to suggest there would be a meaningful turnaround in international milk powder prices anytime soon.
Having previously forecast the OCR down to 2.75%, Mr Bagrie yesterday revised that down a further 25 basis points to 2.5% also.
''Following a 25-basis point cut later this month, [July] we forecast the Reserve Bank to deliver a third consecutive cut in September,'' he said in a statement.
However, he said, ''the economy is not grinding to a halt just yet'', noting the extent of New Zealand dollar depreciation seen to date, and key positive economic pillars which still existed, such as net migration, tourism and net wealth gains.
On the question of the country's rising credit, Mr Tuffley said housing credit was the aspect catching the Reserve Bank's attention the most.
''It is clear that even before the Reserve Bank cut the OCR in June, past falls in interest rates were already fuelling mortgage borrowing demand,'' Mr Tuffley said.
He said mortgage lending was at its strongest dollar value growth since November 2007.
''The temperature remains high in the Auckland housing market, with signs of lifting activity elsewhere.''
He said recent declines in mortgage rates were likely to be playing a part in stimulating the added lending growth.
