Central bank keeps interest rates on hold at 2.25 percent...

• Central bank keeps interest rates on hold at 2.25 percent
• Further cut projected, but outlook uncertain
• High housing prices a concern - RBNZ

(Adds RBNZ governor comment, analyst comment)

New Zealand's central bank held its benchmark policy rate at a record-low 2.25 percent on Thursday and signaled its reluctance to ease further amid concerns over a hot housing market, triggering sharp rally in the local dollar.

The Reserve Bank of New Zealand (RBNZ) indicated it could cut rates again due to low inflation, a global menace that prompted South Korea to deliver an unexpected cut on Thursday. The lack of price pressure is also a worry for policy makers around the world as they try to stoke their economies amid weak external demand.

In New Zealand, however, soaring home prices have put the central bank in a tricky situation after it slashed rates five times since June last year - the last 25-basis-point cut coming in March.

"House price inflation in Auckland and other regions is adding to financial stability concerns," said RBNZ governor Graeme Wheeler in a statement accompanying the decision.

The New Zealand dollar soared to a one-year high, rallying roughly 1.5 percent to $0.7139, reflecting some expectations of a rate cut even though a small majority in a Reuters poll had predicted no change.

The market is now pricing in a 40 percent chance of a rate cut at the August 11 policy review, from 60 percent before Thursday's decision, according to analysts.

"There are powerful, opposing forces buffeting the monetary policy stance. Price stability alone would warrant lower rates, but the clear argument for not moving yet is the housing market's resurgence, and comments on the latter today convey more alarm than in April," said Ben Jarman, economist at JPMorgan.

Indeed, this uncertainty around the policy outlook was echoed by Wheeler, who said that although one more cut was built into the bank's interest rate projections, factors such as economic performance, the currency and inflation expectations will influence its decision.

"You could end up in a situation where there is in fact no cut or there could be more cuts," Wheeler told reporters.

HIGH HOUSING, LOW INFLATION DILEMMA

The RBNZ said it would be meeting in the next few weeks with Treasury officials to consider macro-prudential tools to curb the rise in home prices, including possible income related restrictions on mortgage lending.

New Zealand's housing prices, spurred by low interest rates, high levels of immigration and supply shortages, are the second fastest-growing in the world after Qatar, according to the International Monetary Fund.

Analysts say the RBNZ has to walk a fine line between retaining sufficient curbs on an already overvalued housing market and stoking inflation, which at 0.4 percent is currently running below the central bank's annual inflation target range of 1-3 percent.

"Further policy easing may be required to ensure that future average inflation settles near the middle of the target range," Wheeler said.

In an interview with Reuters soon after the rate review, John McDermott, deputy governor of the RBNZ, said New Zealand was also facing external risks to the monetary policy outlook.

"The world could potentially end up throwing quite a number of curve balls at us," he said, noting expected rate rises by the U.S. Federal Reserve in coming months and Britain potentially exiting from the European Union as risk factors.