In an interview with the Australian Financial Review today, Glenn Stevens said it was encouraging that home prices growth has slowed in Sydney and Melbourne.

“I think it had to happen,” Stevens said.

“The pace of growth that we had you can’t keep going at that pace without new stimulus coming into the market from somewhere because the affordability levels just get out of reach for people unless we keep cutting interests rates, which we’re not doing right at the moment, obviously.”

Stevens declined to forecast where home prices would go next, but added he was relieved that tougher lending standards instituted by the Australian Prudential Regulation Authority (APRA) were working.

“I think that’s a better world than the one we were in,” he said.

The RBA governor also remains upbeat about the overall economy, saying that it was handling the “shock” of the end of the mining investment boom.

However, he said cuts in government spending were slowing the recovery.

“Of course, the public sector is in the mood to restrain that’s a fifth of demand,” Stevens said.

“So that’s another slight headwind that the economy has to overcome.”

AAP