Stevens: Use base rate to curb booms

Wednesday 11 February 2009

Article by Mozo

The Reserve Bank of Australia (RBA) will look to use the base rate of interest in a bid to prevent housing market booms and stock market bubbles growing out of control, governor Glenn Stevens has claimed.

Speaking at a conference in Malaysia yesterday (February 10th), the RBA chief suggested that when house prices get too high, the base rate should be raised to reduce the number of low-interest home loans on the market, thereby preventing the housing bubble to grow any further.

Meanwhile, raising the base rate will also have a stifling effect on stock markets as lending becomes more expensive, helping to keep the financial system in check from time to time.

The governor told attendees to the banking conference: “We need policies that can be effective on the assumption that private financial systems are periodically prone to irrational exuberance.”

In recent months, the RBA has been more than happy to take swipes at the base rate in order to encourage banks to bring out more low-interest home loans and entice first-home buyers into the market.ADNFCR-1761-ID-19020970-ADNFCR

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