Australia has been cautioned by the OECD to keep further interest rate cuts “in reserve” and that the country’s booming housing market could be at risk of a “sharp correction”.
The warning from the Organisation for Economic Cooperation and Development (OEDC) came in its latest economic report on Australia.
Australia’s benchmark interest rate is at an historic low.
But cheap credit has fuelled a housing bubble in some cities, warn analysts.
In May, the Reserve Bank of Australia (RBA) cut its key interest rate by 25 basis points to an all-time low of 2%.
Rising property prices in Australia’s biggest city, Sydney, a strong currency and a drop in iron ore prices were among the reasons for the cut.
But Australia’s treasury secretary John Fraser said earlier this week that Sydney was “unequivocally” in a housing bubble.
A shortage of new houses, cheap credit and generous tax breaks, together with money from overseas investors, have sent the city’s housing prices sky high.