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Reserve Bank of Australia Deputy Governor Philip Lowe said he is concerned about overall level of interest rates as it has boosted asset prices globally.
Although low interest rate is entirely appropriate to help balancing the Australian economy, "we all need to be cognisant of how risk is changing," he said.
"Very low global interest rates have been with us for some time," he said. "And it is likely that they will stay with us for some time yet."
"But the longer it runs on without a pickup in the appetite for real investment, the greater is the potential for new risks to develop," Lowe said.
Monetary policy alone cannot drive the higher ongoing expected returns on capital that are required for sustained economic growth.
"It is instead government policy - including in some countries, increased spending on infrastructure - that has perhaps the more important role to play here," Lowe said.
Further, he said lenders need to ensure that their lending standards remain sound. At the same time, investors should evaluate developments in the broader market, including how their investments might turn out in less benign scenarios.
Lowe said on average, recent loans are probably a bit more risky than those made earlier. "One reason this might be the case is that the likelihood of some type of painful household balance adjustment in the event that there is a correction in the housing market, while still not high, has probably increased," he added.
