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RBA Says Australia Has Enough Policy Flexibility To Deal With European Sovereign Default Crisis
Phillip Lowe, assistant governor at the Australian central bank says that the country has enough policy flexibility to be able to deal with any changes that occur to the global economy, but did warn that international investor concern over the state of public finances may start building.
Mr. Lowe made his remarks at an investor forum organized by Colonial First State, and added that he felt fairly optimistic about the Australian economy, since its major trading partners were experiencing strong growth.
Mr. Lowe went on to say that the main challenge was to increase supply within the economy “so that demand can grow solidly without adding to inflation”.
“At the same time, we need to be aware that circumstances can change quickly. If they do, Australia is in the fortunate position, as are a number of countries in Asia, of having the policy flexibility to be able to respond,” he said.
Mr. Lowe pointed out that risk from the European sovereign default crisis continues, and there remains the possibility that the problems faced by Greece which has gripped financial markets globally, may flare up again.
“Despite the recent announcements (by the International Monetary Fund and European Central Bank) having stabilised confidence in Europe, concerns about public finances could build again. If they did, it would weigh on growth prospects for the countries directly concerned, and it could also weigh on prospects in Asia, particularly if it were associated with a marked increase in risk-aversion globally,” he said.
“The Reserve Bank will be watching carefully over the weeks and months ahead to assess how the balance of these risks is evolving,” he added.
Mr. Lowe’s comments were the first made by a Reserve Bank of Australia official since the European sovereign default crisis reached its peak last weekend, at which point the stabilization fund measures undertaken to deal with the crisis by the European Central Bank and The International Monetary Fund came into effect.
Prior to the remarks by Mr. Lowe, the RBA’s official stance, was that contagion from the European sovereign default crisis, was mainly confined to Europe.
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