Melbourne Cup day surprise
Horses won't be the only surprise on Melbourne Cup day. Ian Verrender reports.
There are dangers in leaving interest rates at low levels for an extended period of time, a Senate inquiry into the federal government's economic stimulus measures has been told.
The Reserve Bank of Australia lifted its cash rate by 25 basis points to 3.25 per cent this week - the first central bank to increase rates since the onset of the global recession.
In raising the rate, central bank governor Glenn Stevens said the basis for having rates at 49-year lows had passed.
The executive director of Treasury's macroeconomic group, David Gruen, told the hearing that cutting interest rates to very low levels was something that that was done if there no alternative.
"But there are attendant dangers in having extremely low interest rates, certainly for any extended period of time," he said.
He said the "global mess" the world found itself in had followed an extended period of ultra-low interest rates in the United States.
"We can debate how bigger contributing factor that was, but it is certainly the case that a considerable body of opinion suggests ... (they) were a significant contributing factor in the housing price bubble that developed in the US," he said.
The idea that only cutting interest rates further and for longer had benefits was an argument that many people - including Mr Stevens - would not agree with, Dr Gruen said.
The Senate economics references committee is conducting the third and final public hearing of its inquiry on Friday.
The opposition has been calling for the stimulus to be wound back more quickly given the strength in the economy and a better-than-expected performance in the labour market.
AAP
