'Too soon to be certain' of economic recovery

SYDNEY - The Reserve Bank of Australia (RBA) believes it is "too soon" to be certain that the global economy is on the road to recovery, the central bank's latest board minutes show.

The RBA left the cash rate unchanged at three per cent for the fifth straight meeting on September 1, as board members pondered whether a raft of local and overseas data presented over the previous month was confirmation of an economic recovery.

"Members concluded on balance that the global economy was most likely on a sustained, if modest, recovery path, though it was still too soon to be confident of this assessment," the minutes said.

The minutes, published today, repeated comments from the August board meeting saying that if the improved prospects for economic growth were realised, the central bank would at some stage lift the cash rate from its current 49-year low.

"At the previous meeting, members had agreed that if the economy continued to evolve as in the latest forecasts, the Bank would in due course need to adopt a less expansionary policy stance," the minutes said.

"The information at this meeting suggested that economic conditions were indeed evolving broadly in that way.

"Nonetheless, some uncertainty remained about the outlook both abroad and at home."

The minutes said information presented to board members at the meeting "showed that the situation in the global economy was continuing to improve".

Gross domestic product (GDP) in the Asian region had been much stronger than elsewhere, while there were some "upside surprises" in countries such as Germany and France, the minutes said.

However, recent data on the Chinese economy was "somewhat mixed" - car sales rose and export volumes increased, but growth in industrial production, fixed asset investment and credit was estimated to have slowed.

"An important question for members was whether the global economic improvement would be sustained, or whether it was mainly a reflection of the strong macroeconomic stimulus that had been applied over the past year and might in due course fade," the minutes said.

Locally, the board members noted measures of consumer sentiment, business sentiment and business confidence had risen, while the deterioration in the labour market had been less than feared earlier in the year.

"Liaison with retailers suggested that household spending had softened somewhat in July but had been better in August," the minutes said.

On financial markets, the minutes said "the extreme risk aversion prevailing in global markets in the wake of the Lehman Brothers collapse last year had dissipated".

"Investors had become more confident, which was evident in the bounce back in global equity prices," the minutes said.

As it did at the August meeting, board members again noted that the decision on cash rate movements involved "balancing the risk of over-staying an accommodative stance, and that of prematurely tightening and adversely affecting confidence and demand".

"The meeting concluded that the balance was best struck by leaving the cash rate unchanged for the time being, pending further evaluation of incoming information at future meetings," the minutes said.

- AAP

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_a2 at 18 Sep 2014 17:13:08 Processing Time: 864ms