Economic conditions in the global economy have improved in the past few months, Reserve Bank of Australia (RBA) governor Glenn Stevens says.
“Things abroad hardly look rosy but they look distinctly better than they did a few months ago,” Mr Stevens told a House of Representatives Economics Committee hearing in Sydney on Friday.
“Conditions in international financial markets continue to improve.
“Extreme risk aversion has abated, spreads have narrowed and capital markets have continue to thaw, even though in some cases that has relied on central banks financing activity.”
The Australian economy has remained “resilient”, with economic activity boosted by both foreign and local factors, Mr Stevens said.
“Exports have been remarkably strong,” he said.
“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.
“This reflects the strength of Chinese resource demand, as well as some other factors.”
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.
“Some of this strength is likely to be temporary, the result of fiscal measures that have a finite life,” he said.
“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.”
Mr Stevens said 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 (GDP) to grow by 0.5 per cent in the year to December 2009 and by an annual 2.25 per cent in the 12 months to December 2010.
Three months earlier the central bank had forecast GDP to shrink by one per cent in the year to December 2009.
The cash rate currently is at a 49-year low of 3.0 per cent.
“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.
“It will then be appropriate for the Board to do what it has done on past such occasions, namely to start adjusting interest rates back towards normal levels.
“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.”
Mr Stevens was appearing before the House of Representatives Economics Committee meeting in Sydney on Friday.