Oz: more rate cuts if needed
The Reserve Bank of Australia (RBA) says there is scope to cut interest rates further if needed, with domestic economic growth expected to fall in 2009...
RBA Deputy Governor Ric Battellino also said Australia was better placed to ride a revival in the global economy, and that were some positive signs in recent economic data in the US.
"The monetary policy transmission process has been effective and there remains scope to ease policy further if circumstances require," Mr Battellino told the Urban Development Institute of Australia National Congress 2009 in Brisbane.
Mr Battellino also said households and businesses across Australia had benefited from cuts to the official interest rate, unlike in other nations where rate cuts had not flowed through as well to those sectors.
The RBA lowered the cash rate from 7.25 per cent to a 45-year low of 3.25 per cent between last September and February in a bid to cushion the economy from a possible recession.
Debt futures markets are pricing the RBA to cut the cash rate by 25 basis points to three per cent when its board meets next on April 7th.
The swing in the budget balances of Governments across Australia from a surplus of 1.5 per cent in 2008 to an estimated deficit of 2.5 per cent this year due to increased spending was supporting the economy, but would not prevent gross domestic product from contracting in 2009, Mr Battellino said.
"This turnaround - about four per cent of GDP - is the largest in the post-war period," Mr Battellino said.
"These measures will go a long way to offsetting the negative influences on the economy coming from abroad, but the reality is that we cannot fully insulate ourselves from what is happening elsewhere in the world.
"As such, GDP is likely to fall in 2009.
Domestic GDP shrunk 0.5 per cent in the December quarter, the first contraction in the economy in eight years, recent Australian Bureau of Statistics data showed.
The March quarter national accounts data will be released on June 3rd.
Mr Battellino said Australia had entered a difficult period for the global economy in September 2008 in "much better shape" than many other countries.
"Australia will remain one of the better performing economies in the developed world and be well placed to benefit from the renewed global expansion when it comes," he said.
The US economy, whose impact on the global recession was profound, was starting to show an occasional glimmer, Mr Battellino said.
"On the real economy, we are starting to notice the odd positive economic indicator in the run of US monthly data, in contrast to the universally negative outcomes a few months ago," he said.
"Let's hope this continues."
China was a factor to a turnaround of the global economy and it was important to Australia's fortunes, Mr Battellino said.
He said Chinese authorities had reacted swiftly and strongly with monetary and fiscal measure to stimulate their economy.
"While China is not going to return to a 12 per cent growth rate any time soon, it is quite possible that the past six months will turn out to have been the period of maximum weakness in the Chinese economy," he said.
While house price fell on average three per cent in Australia during 2008, the local property market performed better than in the UK and US where prices fell around 20 per cent, Mr Battellino said.
The 90-day arrears rate on housing loans was 0.5 per cent, well below the level in the UK and US.
Mr Battellino said rising unemployment would create problems for household to service their mortgages, while a reduction of eight per cent on average on loan repayments gave borrowers breathing space if they occur difficulties.
"The majority of households have chosen not to spend the money that has been freed up," he said.
Rather, they have maintained high repayments and are therefore moving ahead of schedule in repaying their loans."