The Reserve Bank of Australia's recent rate cut may have unintended economic effects although the move was spurred with the intention of helping the Australian economy cope with the fading mining boom. Recent history has shown proof that central bank actions can lead to dire consequences. Economists fear a looming housing bubble.

AFG, Australia's biggest mortgage group has revealed that the number of mortgages currently under process increased by 25 per cent compared in July. While the number of refinancing has reached 35 per cent, market economists fear that big banks will push back if they feel threatened by smaller rival companies. Smaller companies have more access to capital now than in the past years.

After the Reserve Bank's announcement of rate cuts on August 6, economists also expect another slash before 2013 ends.

If smaller lending companies begin to be aggressive, banks may step in which could cause a systemic risk. A prominent banking analyst who asked not to be named said it could all go end with tears in two years.

Chief executive of Mortgage Choice said there has been a rising demand for loans from investors. He also said the Australian economy needs a sustainable price for housing rather than a booming property market.

The Reserve Bank of Australia lowered interest rates to boost construction and not just push the price of inner-city apartments and terraces.

Based on the information from the Australian Prudential Regulation Authority, the RBA's rate cuts were giving lending a big boost with housing credit growth rate at its highest level in almost the same time June quarter retail deposits slowed down.

Stockbroker Charlie Aitken said many years of fear had caused investors to put away $546 billion in term deposits. This could lead to high-yielding assets as RBA's rate cuts crunch returns. Mr. Aitken said this is what happened in the U.S. subprime mortgage crisis and it might be coming to Australia as the Reserve Bank cuts rates to reach an ultra-low and extended period rate.

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