In his opening statement to the House of Representatives standing committee meeting, Stevens said, “… there will come a time when the exceptional monetary stimulus in place at present will no longer be needed.” Then it would be appropriate to do what it has done on past such occasions.
“The timing and pace of those adjustments, if and when they come, will be a matter of careful consideration, taking into account all the relevant factors, including what might be happening with market interest rates,” said Stevens in a half-yearly testimony in Sydney.
The official cash rate now stands at 3%, the lowest level in 49 years. The central bank has reduced the rate by 400 basis points since last October.
The RBA now expects the economy to post a modest growth of 0.5% in 2009, with the growth continuing to firm up in 2010. The central bank expects 2.25% growth in 2010 and a 3.75% growth in 2011.
Further, he said the Australian economy is weathering a very large storm pretty well and confidence about the future also improved commensurately. Although the future poses its own challenges, the nation is well placed to meet them. Stevens assessed that this might well turn out to be one of the shallower recessions Australia has experienced.
According to Stevens, the U.S. and Europe now seems to be at or near a turning point. While much of east Asia and India showed marked improvement in economic activity, reflecting the impact of significant stimulus put in place by governments, the improvement was most pronounced in China. Korea, another important trading partner of Australia also recorded a significant bounce in GDP in the June quarter.
Australia’s export increased over the six months to March, whereas most of the nations reported sharp declines during that period. The terms of trade of Australia are likely to be around 20% lower than their peak last year. But they are around 45% higher than the average for the two decades up to 2000.
With retail sales recording a solid increase in the first half of 2009, domestic demand held up pretty well. The partial recovery of household net worth and lower interest rate would support private demand over the period ahead, he added. Further, business confidence lifted up and capacity utilization stopped its sharp decline. With respect to labor market, he said conditions have seen considerably softer, but there has been little decline in overall employment and the rise in unemployment has been smaller than originally feared.
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