RBA Sounds Note Of Cautious Optimism Over Australian Recovery

Post by Sharat on August 19, 2009 · Under Australian Economy, Business News, Capital Markets, banking · Comments Off

An official of the Australian central bank, The Reserve Bank of Australia, has said he believes that the country’s banking system is emerging from the global financial crisis in a better condition relative to its peers.

Assistant RBA governor, Malcolm Edey says that despite indications of an economic recovery, growth remains fragile.

Mr. Edey, who was speaking at a business forum, said that though conditions have improved significantly since the worst of the crisis, “they are still by no means back to normal,”

The assistant RBA governor said that measures such as the sovereign guarantee of deposits and wholesale funding obligations were temporary, and pointed to the fact that major Australian issuers were now raising funds without the use of the guarantee.

“It’s encouraging to note that Australian banks have again begun to issue significant amounts of unguaranteed debt in the last month or so,” Mr Edey said.

Wawrick McKibbin, also a board member of the Reserve Bank of Australia, speaking at separate economics conference, told attendees that he was optimistic about the outlook for global economic growth.

“I still am very optimistic that this is going to be a very different future than a lot of different people who are very pessimistic think it is going to be. The bubble may have burst but there’s still a lot of growth left in this part of the world.” Mr. McKibbin said

Mr McKibbin also sounded a note of caution however, saying that the huge fiscal and monetary response to the crisis by central banks and governments globally, means that inflation is now a major risk.

“We should be very concerned about inflation I think — that’s the one major risk. We are getting a very big monetary response — the question is as the world economy recovers, and I think it will recover much more quickly than most people think, how will these central banks pull back?” he said.

Mr. McKibbin went on to say that economic recovery would be asymmetric, and primarily driven by emerging economies such as that of China, India and Latin America. He also added that the worst of the crisis appeared to be over, and that there were definitely some positive indicators since then.

Mr. Edey added his voice to that view, saying global equity markets have rallied since their lows, and in some cases by as much as 50 per cent and “there has been a significant rebound in indicators of business and consumer confidence,”

Credit spreads and risk premiums in a range of global markets have been narrowing, “though they are not yet back to normal,” he said.

Mr. Edey also sounded a note of caution saying that uncertainty over the global economic outlook remained and threats to growth continue to be possible.

“But without making predictions, it’s reasonable to say there are encouraging signs now that confidence is improving,” he said.

Australian banks continue to be highly profitable, earning shareholders a high return on equity, with the Big Four retaining their high credit ratings, suffering only a small decline in their aggregate profitability.

Mr. Edey pointed out that the credit impairment rate in Australia continued to remain low compared to that of other countries, but that lenders should be vigilant and expect increased regulation.

“Effort has to be made to contain system-wide risks within reasonable bounds. We are moving into a world where banks are going to be required to hold more capital and to take less risk. In all of this there is a balance to be struck. It will be important to get this balance right,” he said.

Compare Australian Credit Card Deals