By Jacob Greber Feb. 9 (Bloomberg) -- Efforts by policy makers to halt future asset bubbles and credit booms forming may be futile if borrowing costs are kept too low for too long, according to Australia’s central bank Governor Glenn Stevens. “If the root problem is simply that interest rates are too low, experience suggests that efforts to handle the problem by regulation aimed at constraining balance-sheet growth won’t work for long,” Stevens wrote in a paper he co-wrote and delivered to a gathering of central bankers in Sydney today. Using monetary policy to temper an asset bubble just before it bursts may also make an ensuing economic slump worse, Stevens said. European Central Bank President Jean-Claude Trichet, the U.S. Federal Reserve’s Janet Yellen and People’s Bank of China Governor Zhou Xiaochuan are among policy makers from around the world meeting in Sydney to discuss lessons learned from the global financial crisis. “There remains considerable debate about the role of monetary policy in responding to risks to financial stability, Stevens wrote in the article entitled “Fifty Years of Monetary Policy: What Have We Learned?” The “potential instability of a well-developed boom means that for policy makers the least-harm policy is to make sure that their settings are not inadvertently fueling the build- up,” he said. Stevens, who wrote that his article isn’t intended to provide any particular message about current issues for monetary policy in Australia, was the first central banker in the world to raise interest rates three times last year, boosting Australia’s overnight cash rate target by a quarter percentage point every month last quarter to 3.75 percent. ‘Major Challenge’ The governor unexpectedly kept borrowing costs unchanged last week for the first meeting in four, saying information about the impact of his previous increases on the economy “is still limited.” While the challenge of finding a global consensus on whether policy makers should respond to asset price bubbles is a “major challenge,” the last few years have reminded people “of the limitations of what monetary policy alone can achieve,” he said. “Price stability and general macroeconomic stability, to which sound monetary policy surely contributed, did not guarantee financial stability,” Stevens said. “It may even have inadvertently helped to foster the risk-taking that ultimately brought things undone.” The paper was co-written by Adam Cagliarini, senior research manager at Reserve Bank of Australia, and Christopher Kent, its head of economic research. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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