Australian property prices at risk of 'sharp correction', OECD warns

SYDNEY (XINHUA) - The Organization for Economic Cooperation and Development (OECD) warned on Thursday that Australia should avoid further interest-rate cuts to avoid inflaming property prices that are at risk of a "sharp correction".

The OECD told Fairfax Media the net gains from further monetary expansion in the near term are finely balanced.

"The momentum in the housing market and possible need for expansionary firepower given uncertainties in the macro-economic outlook suggest caution," the OECD said.

The warning echoes similar sentiment from financial system inquiry chief David Murray on Tuesday that soaring house prices in Sydney and parts of Melbourne posed a risk to the economy if the boom was followed by a crash in prices.

Australian Treasurer Joe Hockey dismissed concerns about a housing bubble in Sydney and Melbourne on Thursday, saying global experience shows that only happened when supply exceeded demand.

"You've got to get the stock up," Mr Hockey told the Australian Broadcasting Corporation. "The best way to respond to elevated house prices is to increase supply."

The OECD expects Australia's economy to expand by 2.25 per cent in 2015 before strengthening to 3 per cent next year where it assumed the Reserve Bank of Australia (RBA) will begin to raise interest rates in early 2016 in response to improved economic conditions.