Former US Federal Reserve governor Randall Kroszner has warned on the risks associated with the new macroprudential tools promoted by the Reserve Bank to curb the rate of house price growth, The Australian Financial Review reports.
Mr Kroszner said that with no precedent set, it was hard to assess the likely impact of using the new tools -- such as minimum home loan deposits -- in preference to traditional interest rate moves.
“It is important to have macroprudential tools in the central bankers’ toolkit as a complement to interest rate policy,” Mr Kroszner told the AFR. “But they are not the silver bullet, nor a substitute for interest rate policy.
“We don’t have long-term experience using some of these tools, so we don’t know exactly how to calibrate them. If they’re too blunt or too tough, they can have an unintended consequence rather than simply take the frothiness out of markets.”