The Reserve Bank of Australia is warning Aussie borrowers against taking on too much debt as concerns grow about a potential housing bubble in Sydney and Melbourne.
RBA deputy governor Philip Lowe says record low interest rates are working to support spending and help the Australia economy transition away from its reliance on mining investment.
But he conceded the central bank was treading a "fine line" as it tried to boost the economy without creating other problems like excessive borrowing.
"It is ... unlikely to be in Australia's long-term interests to engineer a consumption boom by encouraging people to borrow large amounts against future income," Dr Lowe told a Corporate Finance Convention event on Monday.
"This is especially so when debt levels are already high and prospects for future income growth are not as positive as they once were."
His comments come after the RBA cut the cash rate to a new low of two per cent in early May, and amid fresh concerns from the corporate regulator about a house price bubble in Sydney and Melbourne.
Australian Securities and Investment Commission chairman Greg Medcraft told the Australian Financial Review he was worried about a possible housing bubble, and warned investors against borrowing when they can't afford it.
Housing prices in the nation's capital cities have risen 7.9 per cent in the year to April, with the Sydney market up by 14.5 per cent.
Despite surging house prices, Dr Lowe said the RBA still had room to slash interest rates further, if needed.
"We still have scope to lower interest rates if we need to, that doesn't mean we're going to but we have scope to do that," he said.
"Nothing has changed in that dimension."
In the speech, Dr Lowe also reinforced the RBA's long-held view that a further fall in the Australian dollar would help the economy.
He also urged business executives to review the levels of expected returns on new investments in the context of low global interest rates.
The deputy governor's speech comes ahead of Tuesday, when the RBA releases the minutes from its May meeting.
Analysts will be scouring the minutes for clues to further rate moves.
Share
