Analyst: rate cut fuels ‘bubble’ risks

by Caroline Dann04 Oct 2012

A leading analyst has warned the RBA’s rate cuts could lead to a housing bubble, with a subsequent crash that would be “catastrophic” for the economy.

Ratings agency Moody’s told the Australian Financial Review (AFR) low interest rates could result in a buying frenzy, which would create a housing bubble.
It said while the current system was stable, it “could see issues arising.”
According to the AFR, APRA and the RBA have already warned banks not to follow a similar path to the US, by maintaining credit standards and discouraging an unsustainable buying surge.
Former RBA board member Warwick McKibbin told the AFR a future housing bubble burst would likely be “catastrophic” for the Australian economy.