RBA: "Conditions in international financial markets continue to improve"

Glenn Stevens, Reserve Bank of Australia governor, told a House of Representatives Economics Committee hearing in Sydney on Friday that economic conditions in the global economy have improved in the past few months. "Conditions in international financial markets continue to improve. Extreme risk aversion has abated, spreads have narrowed and capital markets have continued to thaw, even though in some cases that has relied on central banks financing activity," he said.

Besides, Mr Stevens added that the Australian economy has remained "resilient'', with economic activity boosted by both foreign and local factors. The Australian dollar rose after Mr Stevens' comment, rising to 84.48 US cents, a gain of about a third of a US cent. "For Australia, they grew over the six months to March, whereas for most countries exports fell sharply over that period. Further growth appears to have occurred in the June quarter,'' he said.

Mr Stevens said domestic demand has performed well in the first half of 2009, with consumer spending rising, and housing credit increasing along with home prices. "We are assuming, for example, that consumer demand, and first-home buyer demand for finance, will be softer in the second half of the year.''

Furthermore, Stevens said that while there was considerable uncertainty surrounding the economic forecasts outlined in the RBA's recent Statement on Monetary Policy, the current level of historically low interest rate could be lifted if those estimates on the economy bore fruit. The RBA forecasted gross domestic product to go up by 0.5 % in the year to December 2009 and by an annual 2.25 % cent in the 12 months to December 2010. Three months earlier the central bank had forecast GDP to shrink by 1 % in the year to December 2009. The cash rate currently is at a 49-year low of 3 %.

"Nonetheless if things continue to look like they will turn out in that fashion, there will come a time when the exceptional monetary stimulus in place at present will no longer be needed,'' he said.