Bank says it did not ask OECD to be cautious

The Central Bank has denied asking the OECD to show "extreme caution" about releasing an estimate indicating that Irish property prices are overvalued by 15 per cent.

The comments are attributed to the Bank in a memorandum of a meeting between officials from the Organisation for Economic Cooperation and Development officials and bank representatives last September.

According to the memo - which was reported in The Irish Times yesterday - the Bank's representatives urged caution "to avoid destabilising the market".

A spokesman for the Bank said last night that "the OECD version of events is not agreed". She added that two unnamed officials who attended the meetings "did not remember" saying that the information should be treated with caution. The OECD could not be contacted last night.

The memorandum was sent to the secretary general of the OECD, Donald Johnston, on October 10th. In it the OECD records the Bank's representatives as saying that the OECD's view that property prices are overvalued by 15 per cent is consistent with their own judgment before going on to say the Central Bank officials "suggested that any numerical estimate of overvaluation should be presented only with extreme caution to avoid destabilising the market".

In a statement issued earlier in the day in response to media coverage of the report in The Irish Times, the Bank said it "did not suggest that the OECD study should not be published, and the OECD has confirmed this to the Bank".

This was not alleged in The Irish Times report which quoted the OECD memo stating the Bank had urged caution about making the figure in question public.

The Bank spokesman said last night that two of the officials in question "did not remember saying 'treat it [ the overvaluation estimate] with caution'".

In its statement the Bank said that it had addressed the issue of house prices last year in the Financial Stability Report, its annual review of the overall health of the banking system.

"The Central Bank showed that house prices could be largely justified by fundamentals or could be overvalued to varying degrees, depending on the model used. This was widely reported at the time," it said.

The Bank added that in its Financial Stability Report of 2005 which was released last week - the Bank expressed the view that, as the rate of increase in house prices has moderated, the risk of a sudden fall in prices may have receded somewhat, but cannot be dismissed.

"As stated in the report, if house price rises were to reaccelerate, this would increase the risk of a sharp correction of house prices in the future," according to the statement.

The OECD team visited the Bank as part of its review of the Irish economy.