Tuesday May 19, 06:14 AM
Aus central bank sees signs of recovery in 2009
SYDNEY (AFP) - Australia's central bank chief said Tuesday there were signs the economy would recover this year, prompting analysts to predict interest rates will remain on hold in the near future.
Reserve Bank of Australia governor Glenn Stevens, who last month conceded the country was in recession, said economic data indicated an upturn was round the corner.
"It is too soon to say this is the beginning yet, though developments over recent months are certainly consistent with the view that a recovery will get underway towards the end of the year," Stevens said.
His optimism was backed by minutes released Tuesday of a Reserve Bank meeting early this month when board members decided to leave rates on hold at 3.0 percent.
The board noted indications of improving confidence and economic activity in Asia, particularly key export destination China, and said the worst of the global downturn may have passed.
"While it was too early to be confident about the durability of this trend, the evidence was accumulating that the maximum rate of global economic contraction may have passed," the minutes said.
"Members also noted the much better tone in financial markets. Share prices had risen strongly in all countries in recent weeks and credit spreads were declining noticeably."
The central bank has steadily slashed the cost of borrowing from 7.25 percent since last September to a 49-year low of 3.0 percent.
Economists said the bank now appeared set to leave rates while it assessed the impact of the previous cuts and stimulus spending from the government designed to cushion the recession's impact.
"I think they're becoming increasingly hopeful at least that they're at the bottom of the cash rate," National Australia Bank chief economist Rob Henderson said.
He said further cuts were unlikely barring an "unforeseen blowup" in economic circumstances.
Westpac chief economist Bill Evans said interest rates could still go lower towards the end of the year as rising unemployment puts pressure on the central bank.
But he added: "On balance, we do not see an argument in this report that points to an immediate rate cut."
"But (we) believe that when the expected sharp deterioration in the labour market gathers pace through the second half of 2009, the bank will see the risks in favour of cutting further far outweigh the risk of over-stimulating.
"We stick by our expectation that rates will be down by 100 basis points by the end of 2009."
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