Login
ISCOVER
The Reserve Bank of Australia (RBA) has quashed concerns raised by the International Monetary Fund (IMF) that a housing bubble is looming for markets such as Australia.
A paper released by the IMF earlier this week noted that under the guise of ‘apparent economic tranquillity’, low inflation and low interest rates around the world have the potential to create a price bubble.
To continue reading the rest of this article, please log in.
Looking for more benefits? Become a Premium Member.
Create free account to get unlimited news articles and more!
Looking for more benefits? Become a Premium Member.
“Where low policy rates are consistent with low inflation, they may still contribute to excessive credit growth and the build-up of asset bubbles and sow the seeds of financial instability,” the IMF report said.
“In small open economies, increases in interest rates may be necessary in the face of inflationary shocks, but can draw in capital flows that may contribute to excessive financial risks.”
However, RBA assistant governor Malcolm Edey hit back, claiming that Australian commentators using the IMF warning to speculate about a housing bubble were being ‘unrealistically alarmist’.
“We shouldn't be rushing to reach for the bubble terminology every time the rate of increase in house prices is higher than average, because by definition that will be 50 per cent of the time.”
“You're just going to be unrealistically alarmist in making that call every time that happens.
“This is an area to watch but we do need to keep it in perspective,” he said.
