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Australia should do more to contain housing bubble, climate change-IMF By Reuters

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© Reuters. FILE PHOTO – Tradesmen are seen working on the roof at the Oran Park housing project in western Sydney, Australia. This was October 21st 2017. REUTERS/David Gray

SYDNEY (Reuters) – Australian authorities need to tighten home loan standards to cool a red-hot housing market and reduce risks to the financial system, the IMF warned on Friday, while also calling for more action on climate change.

The International Monetary Fund (IMF), in its annual assessment of Australia warned that fiscal and monetary policy must remain supportive to help the economy get through the difficult period of coronavirus lockdowns.

The IMF stated that record low interest rates have caused a rise in home prices, and the need to contain borrowing.

According to the IMF, “surging housing prices raise questions about affordability and financial security.” The IMF stated that macroprudential policies should be tightened, and that lending standards must be closely monitored.

There are a number of options, including increasing the interest serviceability buffers as well as limiting how much banks may lend to high-debt-to income and loan-to value borrowers.

Supply-side reforms are needed, including better planning, infrastructure, and zoning. IMF also called on governments to offer fiscal support to low-income households, and build more social housing.

Concerning climate change, IMF asked Australia to create a target with a deadline to achieve net zero remissions.

According to the IMF, “This will require quicker progress.” Although it is politically difficult, broad-based carbon pricing and measures to reduce transition risks for affected industries and regions would be the best way to cut emissions.

Josh Frydenberg (Australian Treasurer) will deliver a speech this Friday. Frydenberg stated that Australia could face increased borrowing costs if it fails to join other countries in their efforts to lower carbon emissions.

In terms of the economy, IMF deemed near-term risks to be to the downside due to Australia’s struggle to control the Delta variant. But, recent achievements in vaccinations may allow for an ease in restrictions and recovery in December quarter.

According to the agency, economic growth was forecast at 3.5% in 2021 and 4.1% in 2022.

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