UBS global chief economist Larry Hatheway has warned that unless the Australian dollar falls below US85c in the near future, the Reserve Bank may have little choice but to use other tools besides changing rates to ward off bubble-like conditions in the property market.

Speaking as he was wrapping up a tour of Australia, Mr Hatheway observed that just as Australia was beginning to wean itself off its dependence in the mining goods sector, it must now rebalance its economy towards consumption, as well as investment in other areas of exports.

"Bubbly-like conditions in the Australian housing market.": UBS chief economist Larry Hatheway. Credit:Michel O'Sullivan

"That's going to require, in my view, a weaker exchange rate. Getting from here to there though will be difficult. The Reserve Bank could facilitate that but cutting interest rates might exacerbate some of the bubbly-like conditions in the Australian housing market."