The Organisation for Economic Cooperation and Development (OECD) has recommended to the Reserve Bank that they lift interest rates early in 2015.
It says it would restrict house prices from rising too sharply to risky levels and then coming undone.
In its annual economic outlook, the OECD is forecasting the Australian economy to grow at less than 2.5 per cent next year which is below average and they suggest the RBA lift interest rates from the second quarter of 2015.
The OECD said the record low interest rates currently on offer are causing a ‘search for return’ among investors.
“This requires close oversight of asset-market developments, particularly rising housing credit, which is now being driven by investors,” the OECD said, according to a Fairfax Media report.
“Further prudential measures on mortgage lending should be considered as a targeted means to cool the market, thereby heading off risks to financial stability,” the OECD says.
The report said that the momentum in property prices in uncertain and could unwind sharply.
“Any economy faces the risk that debt build-ups particularly from real estate and problematic loan origination, will lead to financial accidents with the real economy,” said Catherine Mann, the OECD’s chief economist.