Australian Reserve Bank of Australia (RBA) Governor Glenn Stevens said Friday that recent interest rate cuts are not designed to spare mortgage holders the pain of falling house prices.
Stevens says most of the problems in the retail and real estate sectors are because of an unsustainable consumer debt boom is being unwound, according to an ABC Australia report.
But he says the mining boom has actually left Australia uniquely well-placed amongst developed economies to weather the necessary slowdown in consumer spending.
Stevens attributes the surge in household wealth in the decade or so leading up to 2007 - which rose by about six or seven per cent a year – to unsustainable growth in property prices.
This was caused by households saving less and borrowing more, a trend which had reversed over the last five years.
He welcomed the change in consumer habits, saying the 125 basis points in RBA cuts since November were not designed to boost home prices.
"You don't have to be a believer in bubbles to think that a return to sizeable price increases and higher household gearing from still reasonably high current levels would be a risky approach," he said in a speech to the American Chamber of Commerce in Adelaide.
"The intended effect of recent policy actions is certainly not to pump up speculative demand for assets."
Earlier on Tuesday, the RBA slashed the cash rate by 25 basis points, taking the cash rate to 3.50 percent, due to an uncertain global economic outlook as a result of Europe's current debt crisis.