IMF warns of impending hike in interest rates

The head of the International Monetary Fund's (IMF's) staff mission to Australia has warned that house prices are still too high and that interest rates will have to be increased in the near future.

Ray Brooks, mission head, told reporters that this step would be necessary to ease the pressures applied by the two-speed economy.

His comments come after the Reserve Bank of Australia announced that the cash rate would remain at 4.75 per cent.

Governor of the central bank Glenn Stevens asserted that the decision was "prudent" due to recent uncertainty in global financial markets.

However, Mr Brooks suggested that an increase to interest rates may be necessary in order to "contain the inflation pressures that are coming from the impact of the mining boom on the wider economy".

He added that home loans customers are likely to find property more affordable in the future as wages increase and house prices "drift sideways".

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