The Reserve Bank of Australia (RBA) is concerned about a continuation of very low interest rates will prompt borrowers to take on more debt than they can handle, especially if lending standards decline and risk appetite increases.
Based on documents published on Friday under the Freedom of Information request, the RBA saw a risk in its decision to reduce interest rates to a low of 0.10% and introduce lending facilities for banks as well as buying government bonds.
The Financial Regulatory Council is said to act to control risk if necessary.
The RBA says a steady reduction of 100 basis points in interest rates has increased real estate prices by 30% after about three years.
Not only that, there is also a wider impact of policy easing on self-funded depositors and retirees.
The RBA said over the past five years, income from interest, dividends and retirement has fallen well below the long-term average, mainly due to low rates. At the same time, however, it is also offset by higher asset prices.
Does this mean the central bank will find a way out of lower interest rates and wider easing?
