Free Trial

RBA Ellis: Global Econ Pickup Key For Australia Prospects

--Housebold Balance Sheet A Risk In Case Of Some Other Shock
By Sophia Rodrigues
     SYDNEY (MNI) - The turning point in the pickup of the global economy was
around the end of last year, and that is positive news for the Australian
economy, Reserve Bank of Australia assistant governor Luci Ellis said in a
speech that once again confirms the central bank sees the next cash rate move to
be up.
     The speech, delivered Wednesday at a lunchtime briefing to the Australian
Business Economists in Sydney, builds on recent upbeat comments from the RBA on
growth prospects for the economy.
     On Sept. 5, Governor Philip Lowe gave the clearest signal that the next
move on the cash rate is likely to be up when he said that as Australia makes
further progress on both unemployment and inflation, the cash rate could be
expected to move toward the 3.5% neutral rate over time.
     In the speech Wednesday, Ellis said the global economy is looking better
than it did a year ago. 
     "The turning point was around the end of last year. While it doesn't seem
to have picked up further recently, neither is this expansion a flash in the
pan. That is positive news for the Australian economy, too," she said.
     There are also risks, and for Australia the key one is the high level of
household balance sheet, Ellis said, but added that this is only a risk if some
other shock should come along.
     "Of itself, the level of indebtedness is unlikely to be a triggering factor
that sparks a negative outcome. But it is an important consideration in the
context of other triggers," Ellis said.
     Among other risks related to global factors, Ellis said the first such risk
is geopolitical, but that has receded in Europe and specifically the euro area.
Against that, geopolitical risks in Asia have increased, but these are low
probability, high-impact events that do not affect the central scenario until
something actually happens.
     Financial risks have become less pertinent at the moment as the urgency of
the search for yield globally has become less pressing, Ellis said.
     A final risk is the global monetary policy environment, together with the
economic and market reactions to it, as prices and wage growth remain low, Ellis
said.
     "Expansionary monetary policy and less contractionary fiscal policy have
supported economic recoveries. Some economies are now thought to be close to
full employment and productive capacity. Yet so far, growth in both prices and
wages has remained quite low," she said.
     Ellis said wage growth and inflation could take a while to pick up, but
that inflation would stay low despite reasonable growth in a range of economies,
posing a challenge to policymakers.
     "In that scenario, policy still needs to remain appropriately expansionary
while avoiding further build-up of leverage and financial risk. Calibrating the
pace of withdrawal of stimulus will be no easy task," Ellis said.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$]

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.