Australian economic downturn 'shallower', rates will rise, Stevens says

Friday 14th August 2009

Australia’s economic downturn may prove to be one of the shallower ‘recessions’ the nation has faced and the central bank will have to lift interest rates at some point, Governor Glenn Stevens told the parliament’s economics committee.

“On the basis of the information to hand at present, this may well turn out to be one of the shallower recessions Australia has experienced,” Stevens said in a speech posted on the Reserve Bank’s website. “There will come a time when the exceptional monetary stimulus in place at present will no longer be needed,” he said.

The federal government plans to spend some A$34 billion to soften the impact of the downturn on households and develop infrastructure projects. The central bank has cut its benchmark rate from 7.25% since September.

Government bond yield rose after Stevens’ upbeat address, with the yield on five-year debt climbing 7 basis points to 5.46%. One-year notes jumped about 10 basis points to 3.92% as traders bet the overnight cash rate will be increased from a 49-year low of 3% as soon as this year.

Stevens said the economy probably expanded in the second quarter after avoiding falling into recession in the first three months of the year, when GDP expanded 0.4%.

The central bank this month forecast the economy will grow 0.5%, a reversal of its previous prediction for a contraction.

“The economy appears to be weathering a very large storm pretty well, and the community’s confidence about the future has improved commensurately,” Stevens said.

The global economy is also showing signs of improvement, Stevens said. “Things abroad hardly look rosy, but they look distinctly better than they did a few months ago,” Stevens said.

Businesswire.co.nz

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