THE Central Bank has forecast another strong year for the economy, but it sounded a warning that rising house prices and strong demand for mortgages may fuel inflation.
Central Bank governor Mr Maurice O'Connell said yesterday the outlook for the economy is "very stable", with no sign of a downturn.
Forecasting a 5 per cent rise in Gross National Product this year, the Central Bank says there is no evidence to suggest that the economy is starting to slow.
Following a record year for job creation in 1995, the bank expects another 37,000 new jobs will come on stream this year.
While the rate of inflation is expected to remain at around 2 per ant in 1996, the Central Bank is worried the sharp increase in house prices and the strong demand for mortgages may begin to fuel inflationary pressures.
Its main fear is that competition between banks and building societies for new business could become "too aggressive" and create a "difficult" situation for borrowers, he said. But the governor has warned that the bank will take action to dampen lending growth if it is seen to be rising too rapidly.
As part of its efforts to monitor credit growth in the economy, the Central Bank has held a series of meetings with the credit institutions. Mr O'Connell says it is satisfied that appropriate standards are being applied when lending money.
All of the institutions have assured the bank that they do not give 100 per cent mortgages to borrowers. "New purchasers are getting mortgages of between 90 and 95 per cent. The average loan is for between 60 and 70 per cent, with first time buyers getting closer to 90 per cent mortgages."
The banks and building societies have told the Central Bank they have not departed from long established lending criteria. New borrowers are mainly benefiting from discounts being offered on normal mortgage interest rates, he said, with most typically being offered savings of up to 1.5 per cent.