FED:Aust at "pretty good starting point"=4

AAP General News (Australia)
08-26-2011
FED:Aust at "pretty good starting point"=4

Mr Stevens said that caution was not necessarily a bad thing.

"That's good because some day if there is a downturn, you don't want those households
to be excessively exposed in terms of their leverage when there is an adverse shock to
income," he told the committee in response to a question.

"We have got an investment boom , it is actually not a bad thing to have some savings
to help fund that."

Three months ago, the central bank was leaning toward raising interest rates to combat
inflationary pressures in the local economy.

But since then it had "sat still" and watched as stock prices fell, loan growth moderated
and the Australian dollar rose.

Looking ahead, consumer price index (CPI) inflation in the September quarter was likely
to remain "well above" three per cent - which is high in inflationary terms.

It was then likely to fall into the early part of 2012, as the impact of the summer
floods in Queensland on food prices waned.

However, the RBA board would still need to be careful when considering interest rate
settings in the months ahead.

"It would be reasonable to anticipate that a decline in confidence arising from the
recent events internationally may well dampen demand somewhat," Mr Stevens said.

"That, together with the increased visibility of structural change in the economy,
may also condition wage bargaining and price setting.

"If these forces persist, they may act to lessen the upward trend in inflation pressures
that appeared to be in prospect."

On the other had, significant rises in a range of "administered" prices - such as electricity
- were due to occur over this time.

"So as usual, there are varying factors about which the Board will need to make careful
judgements over the months ahead," he said.

As well, Mr Stevens said while there had been some moderation in growth in the Chinese
economy it remained solid, inflationary pressures were rising.

"Asia's management of these challenges will ultimately matter a good deal for Australia,
and for the world," he added.

Mr Stevens also said it would not be until next year that coal production in Queensland
was likely to recover, following the summer floods.

"The process of de-watering pits is taking longer than initially expected," Mr Stevens
said in Melbourne.

"So the recovery in coal production is only about two-thirds complete at this time.

"It may be early next year until production is fully recovered.

Mr Stevens noted also that Australian bank funding costs had fallen, resulting in lower
interest rates for fixed mortgages.

AAP klm/it

KEYWORD: RBA 4 CANBERRA

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