Reserve Bank of Australia Governor Glenn Stevens has told the House of Representatives Standing Committee on Economics that households are still cautious and may be for some time.
“In my judgment, it is increasingly clear that we are seeing a significant change in household behaviour,” Stevens said.
“The new normal, which is the old normal, is where households save a non-trivial fraction of household income and where they keep their debt levels more in line with growth in income.”
Stevens also commented that inflation needs “careful watching”, but also believes the RBA is set to keep CPI under control.
“But at this point in time, our terms of trade are at a record high, while our unemployment rate remains low,” he said. “Inflation bears careful watching, but we can keep it under control.”
With regard to economic conditions, Stevens said there will be some nervousness among markets, but stated Australia’s economy is well positioned to cope with any downturn.
“Our banks are strong, our currency is sound and our sovereign credit position is in the international top tier,” he said.
“Consumer caution, while making life hard for the retail sector, is also building resilience in household balance sheets. If we’re entering another period of weaker international conditions, this is a pretty good starting point from which to do so.”
Stevens also said that reliance on wholesale funding has declined.
“In any event, their reliance on such wholesale funding is much reduced from three years ago, with the large increase in deposit funding at home and slower balance sheet growth,” he said.
“There has been no abnormal demand for liquidity by financial institutions from the Reserve Bank in this period and the quantity of settlement funds in the system has been completely normal over the past month.”
Media giant Fairfax has seen its shares jump over 9% this morning despite recording a loss of $390 million in the last 12 months, compared to a $270 million profit in the 2010 year.
The company announced the result was due to writedowns worth $650 million.
“Advertising revenues are down 4% compared to last year, and appear to be stabilising from the last quarter of the 2011 financial year when advertising revenues were down 6%,” Fairfax said in a statement.
“Visibility in advertising markets still remains opaque and general economic trends do not give us confidence that we will see any significant rebound in revenues in the current half.”
Chief executive Greg Hywood commented the industry is dealing with a “prolonged cyclical downturn”.
The Australian sharemarket has remained flat this morning despite a weak lead from the United States, where stocks dropped after disappointing data on jobless claims was released.
The benchmark S&P/ASX200 index was up 0.6 points or 0.02% to 4213.5 at 12.10 AEST, while the Australian dollar remained stable at $US1.04c.
ANZ shares rose 0.35% to $19.95, while Commonwealth Bank shares rose 0.02% to $47.50. Westpac shares rose 0.5% to $20.10, as NAB shares rose 0.43% to $23.17.
In the United States, the Dow Jones Industrial Average fell 170 points or 1.5% to 11,149.
Supermarket giant Woolworths has said it will begin selling insurance products.
“We intend to have a long-term presence in the insurance sector, with the ability to cater for all our customers’ insurance needs,” head of insurance George Hughes said in a statement.
“Whether it’s groceries, credit cards, mobile phone plans and now insurance, our customers trust Woolworths to deliver products and services that are reliable, uncomplicated and great value for money.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
