In an exclusive interview with The Australian and The Wall Street Journal, Reserve Bank governor Glenn Stevens revealed that while the Australian Prudential Regulation Authority’s attempts to control the growth of the housing market have been largely successful, he is still not convinced that macroprudential tools can do their job in the long term.

“If we sought to contain credit growth for a lengthy period with regulatory tools, we probably would end up relearning those lessons,” he said.

In fact, central banks all over the world have also failed to lift demand with the use of unconventional methods, such as containing the growth in credit with regulatory tools while operating on low interest rates.

“The central bank can help in the deleveraging process. It can bring rates down to speed up the adjustment, but it can’t magically wave away the leverage that was there that people have to fix,” Stevens said. “When you’re tightening, you can always find an interest rate that’s high enough that you’ll stop them from borrowing, but when you’re cutting, you can’t assume there’s a rate low enough that will restart it all, particularly if they started with too much debt to begin with.”

Though Stevens acknowledged that the world economy will not return to pre-financial crisis conditions, there has to be an end to the stimulatory monetary policy.

“People understand the way the Fed is thinking about the economy: they understand there’s going to have to be a return to normal. Normal is not the same place now, but people know that normal isn’t here,” he said.