Deepening Gloom in Australia Poses Challenge to RBA
A deepening gloom across the largest developed economy to escape recession during the global financial crisis is shaping up as one of the toughest challenges yet for Reserve Bank of Australia chief Glenn Stevens.
While policy makers from the U.S. Federal Reserve to the European Central Bank are still pumping stimulus into their economies at least in part to address job-market slack, Australia’s price pressures limit that option for the RBA.
Australian employers have been squeezed by a currency that averaged more than 90 U.S. cents for the past seven years, compared with about 70 U.S. cents in the 20 years prior.
Australia’s central bank also lowered its growth and inflation forecasts for the year ahead, citing its expectation that mining investment will “decline much further” and budget cuts at the state and federal level.
“There is insufficient domestic demand growth to stabilize wage growth or the unemployment rate and together with fiscal policy changes this would feed through to weaker household income growth,” Tim Toohey, Melbourne-based chief Australia economist for Goldman Sachs Group Inc.
The governor, in response to separate questions after the July 22 speech, brushed aside queries on whether record-low rates are having traction in the economy.
“Low interest rates are doing the sorts of things they normally do in most respects,” Stevens said. “I’d still maintain up to this point that we’re doing what can reasonably be done, but if there’s more that can be reasonably done at some point then obviously we’d do that. But I’m content right now.”
Source: Bloomberg
