The Reserve Bank of Australia has kept the official interest rate unchanged at 3%, with governor Glenn Stevens saying in a statement that the global economy is beginning to stabilise.
Additionally, the phrase, “there is some scope for further easing of monetary policy”, does not appear in the statement, indicating the official interest rate may have reached its lowest point.
“With considerable economic stimulus in train around the world, the global economy is stabilising after an earlier sharp contraction in demand. Downside risks to the global outlook have diminished, though they have not disappeared and most observers expect only modest growth overall,” Stevens said in a statement released after the decision was handed down.
“There is tentative evidence that the US economy is approaching a turning point, but conditions in Europe are still weakening. Growth in China, in contrast, has been very strong in recent months, which is having an impact on other economies in the region and on commodity markets.”
Stevens also said credit conditions remain difficult, and the affects of a weak economy on asset quality will be a challenge. Restoring balance sheets, he said, will be needed before a global economic recovery can be seen.
But he also said economic conditions are stronger than expected, particularly in consumer spending and exports, with good results from confidence measures suggesting “the risk of a severe contraction in the Australian economy has abated”.
“The most likely outcome in the near-term is a period of sluggish output, with consumer spending likely to slow somewhat and investment remaining weak. Stronger dwelling activity and public spending will start to provide more support to overall demand soon, and growth is likely to firm into 2010.”
“Housing credit has been solid, and dwelling prices have risen over recent months. Business borrowing, on the other hand, has been declining, as companies have postponed investment plans and sought to reduce leverage in an environment of tighter lending standards.”
The RBA board has said it will continue to monitor economy and financial conditions in the future and how they will impact growth prospects.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
