Residential property prices could spike by 15% if the Reserve Bank of Australia is forced to cut rates to below 1.25 per cent in response to falling oil prices impacting the US economy, a prominent economist has warned.

Matthew Peter, Queensland Investment Corporation’s chief economist says the plunge in world oil prices has the potential to push the US economy into deflation this year, which would prompt the Federal Reserve to defer a tightening cycle to 2016. "The RBA would have to offset that and cut rates quickly – to 1.25 per cent for a quarter before raising it to 1.5 per cent – but cannot hold them there for very long due to the extreme impact it would have on the housing market,” Peter told The Sydney Morning Herald in a detailed assessment of the impact of the decline in oil prices on the economy.

“It would give a 15 per cent lift to housing prices.”