OECD warning over risks of raising interest rates

Interest rate setters face a "difficult balancing act" amid the threat of a potential housing market correction and risks to the wider economy from raising borrowing costs, according to an influential think tank.

The Paris-based Organisation for Economic Co-operation and Development (OECD) warned that in a number of economies with sky-high house prices, rate hikes could have worrying side-effects after years of rock-bottom borrowing costs.

In its interim economic outlook report, the OECD said: "Authorities face a difficult balancing act in continuing to provide support while managing financial stability risks."

It added: "In some advanced economies, including Australia, Canada, Sweden and the United Kingdom, house prices are elevated relative to rents, raising financial stability risks if rising interest rates were to trigger a housing market correction."

Rates have been at historically low levels in a number of economies.

"The long period of low interest rates has boosted asset price valuations and created financial distortions that will be testing to resolve," the OECD said.

KEYWORDS: Interest rates, OECD


Most Read in Business

World Markets