UPDATE 1-Ireland needs rules to avoid boom-bust cycle, central bank head says

* New governor Lane defends mortgage limits

* Lane says small, open economies like Ireland are vulnerable

* Lane forecasts GDP growth of 5 pct in 2016 (Adds Lane quotes, background on mortgage rules)

DUBLIN, Jan 22 (Reuters) - Ireland needs rules to avoid boom and bust cycles as its small, highly globalised economy makes it especially vulnerable to economic shocks, Ireland’s new central bank governor said on Friday, in his first major policy speech.

Philip Lane, who took over from fellow university professor Patrick Honohan in November, defended his predecessor’s introduction of controversial loan-to-value limits on mortgage lending last year and said the bank should be proactive in implementing such macroprudential policies.

Ireland has rebounded from a 2010 international bailout to post the fastest economic growth in Europe last year. Lane estimated that gross domestic product had grown by 6.5 to 7 percent in 2015, and would grow around 5 percent this year.

But he said the Irish economy had benefited significantly from external factors such as low interest rates and a 20 percent fall in the value of the euro against the dollar in the past 18 months. Some economists have criticised the government for introducing tax cuts and spending increases in its 2016 budget rather than paying down debt.

With the global outlook uncertain, Ireland must be careful to avoid a repeat of the “costly boom-bust cycle” that it had endured in the last decade, Lane told the Institute of Directors.

“Small, highly globalised countries such as Ireland are inherently more volatile than larger economies: we can grow strongly for extended periods but are also especially vulnerable to negative shocks,” Lane said.

“For this reason, it is essential that the central bank is proactive in the deployment of macroprudential policies that can improve resilience and mitigate the pro-cyclical dynamics associated with excessive leverage.”

A parliamentary election is expected in February, and promises to sustain economic growth are a key part of Prime Minister Enda Kenny’s re-election strategy.

Some politicians have said the central bank is hurting working first-time buyers and giving an advantage to richer families by placing limits on mortgage lending.

Lane said the bank would review the rules in November, and could either tighten or loosen the rules if necessary.

He said global economic and financial conditions were the main risk factor for the economy, but that the bank would be “keeping a watchful eye” on risks related to Britain’s planned referendum on whether to leave the European Union.

In a bid to boost transparency, Lane said the central bank would start to publish the minutes of meetings of its board, the Central Bank Commission. (Reporting by Conor Humphries; Editing by Kevin Liffey)