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.

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.

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