Australia flags rate rise as 'recovery phase' begins
September 28, 2009
Australia's central bank chief on Monday said economic stimulus was set to be eased back as the country hits "recovery phase" after shrugging off the worst global economic crisis in decades.
Reserve Bank of Australia (RBA) governor Glenn Stevens said interest rates would be lifted off 49-year lows to keep a lid on inflation as the domestic economy rises from its "mild downturn".
"I think it is reasonable to conclude, against the benchmarks of historical and international experience, that Australia has done quite well on this occasion," he told a Senate committee hearing.
Australia moved a A$70 billion (R449 million) stimulus package and slashed rates to 3.0 percent as the world economy dived, helping it avoid recession and post world-beating growth of 0.6 percent in the June quarter.
"In due course, both fiscal and monetary support will need to be unwound as private demand increases," Stevens said.
"In the case of the fiscal measures, this was built into their design. The peak effect of these measures on the rate of growth of demand has probably already passed."
The central bank chief said strong demand from Asia, particularly China, for Australia's vast resources had lifted the economy and brightened prospects for the future.
He said rates increases would be "timely", adding that he also expected government stimulus measures to ease over the next year.
"These adjustments back towards more normal settings for both types of macroeconomic policy are what should be expected during the recovery phase of a business cycle," Stevens said.
"By standards of past recessions ... this was a mild downturn," he added.
"Although the evidence is as yet incomplete, this episode has been much less serious than those in the mid-1970s, the early 1980s and the early 1990s."
Stevens' optimistic comments come just a year after the collapse of Wall Street investment bank Lehman Brothers heralded the biggest financial catastrophe since the Great Depression.
The Sydney share index has recovered to similar levels as last September, the Australian dollar has surged to around 86 US cents and unemployment is steady at 5.8 percent.
Australia has also been buoyed by a series of major trade deals including a record $41 billion (R306 billion) liquefied natural gas contract between ExxonMobil and PetroChina.
"I have maintained throughout that Australia's medium-term prospects remained good and that we should not lose confidence. More people seem to be taking that view," Stevens said.
"People are realising that, though things have been tough, the worst has not occurred and the future is looking brighter."
Australia's government has attempted to rein in the rising sentiment, with Prime Minister Kevin Rudd warning this month that he was "deeply concerned" about the global economy. - AFP
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