Falling interest rates could trigger a property price boom that encourages households to take on too much debt, raising the risk of a future market downturn that ravages the economy, the Reserve Bank of Australia has warned.

With bond markets betting that the RBA will cut the cash rate to 2.9 per cent by December next year, from the current 4.35 per cent, the central bank warned on Thursday that the prospect of low interest rates could encourage households to take on even bigger mortgages.