Oz bank predicting recovery?
Following on from the Reserve Bank of Australia's (RBA) decision to hold interest rates at three per cent, it has now announced that it is expecting a recovery in the global economy and that any future rate cuts may well be smaller and less frequent...
The three per cent rate is the lowest rate for 49 years and was left unchanged this week after a cut of 25 basic points in April.
Economists had widely expected the bank to keep the current rate unchanged as it takes stock of the previous cuts and other stimulus measures.
The RBA noted some light at the end of the tunnel for the world economy despite continuing short-term gloom.
It announced that the need for further rate cuts will depend on economic and financial developments and said that it thought the economic situation was set to improve.
The Bank released a quarterly statement on monetary policy which read, "With interest rates at historically low levels, and some signs of stabilisation in the world economy, the board has recently viewed it as appropriate to make small and less frequent adjustments to the cash rate than was the case up until February when conditions were deteriorating rapidly."
RBA Governor Glenn Stevens said the global economy shrank further during the first few months of 2009 but noted that financial markets seemed to be slowly improving and big stimulus plans in several countries were helping to contain the downturn.
"While the near-term outlook remains weak, there are further signs of stabilization in several countries," said Mr Stevens.
Expectations by the Bank are that the Australian economy will recover by the end of the year if this stabilization continues.
The Australian Bureau of Statistics said that the rate of approvals to build new houses rose by 3.5 percent in March compared to February. The rate was higher than expected, and was the second consecutive monthly rise, though seasonal adjustment has to be taken into consideration.
But, sadly the situation isn't all rosy. The Australian economy has undergone a significant slowing and unemployment is continuing to rise. Australian Prime Minister Kevin Rudd has suggested that unemployment could rise to seven per cent by mid-2010 from the latest rate of 5.2 per cent.
The RBA as reduced its GDP forecasts - stating that GDP will contract by 1.25 per cent in the June quarter and by one per cent over calendar 2009.
As the vast majority - eighty per cent - of Australian mortgages are variable, they track the base rate, giving any decisions by the Bank more impact than if most mortgages were fixed. It is the opposite in the USA and the UK.
In 2010, the Bank predicted that the economy should improve with GDP growing by a 0.5 per cent in the June quarter and by two per cent over the year.
Picture by Martin Kingsley