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WELLINGTON, Sept 29 (Reuters) - New Zealand's currency remained strong and imbalances in the housing market posed a financial stability risk, the Reserve Bank of New Zealand said on Thursday.
"We remain vigilant about financial stability risks arising from imbalances in the housing market," said RBNZ governor Graeme Wheeler in the bank's annual report.
The central bank has long voiced concern about New Zealand's hot housing market, where it said house prices have increased by 15 percent nationwide over the past year and where house price-to-income ratios in the country's largest city of Auckland are among the highest in the world.
It has recently introduced some further curbs to mortgage lending in a bid to take some of the heat out, but on Thursday reiterated a severe housing correction would pose "substantial risks for financial system stability and the broader economy."
The central bank noted that banks are heavily exposed to housing, with mortgages making up about 55 percent of their total assets.
Household debt, at 163 percent of household disposable income, is at record levels, it said.
The comments came after the central bank kept rates on hold at a record low of 2.0 percent last week, but said that further easing would be needed. [L3N1BX4TD]
On Thursday it noted the exchange rate remained 2.5 percent higher than in June last year on a trade-weighted index basis, despite six cuts to the official cash rate. Also, "there has been some weakening in short-term inflation expectations."
Wheeler reiterated on Thursday that "a key rationale for cutting the official cash rate has been to lower the risk of a further decline in inflation expectations."
