Bloomberg News

RBA’s Stevens Signals Willingness to Extend Rate Pause

September 06, 2011

(Updates with Stevens’s comments in sixth paragraph, GDP figures in final paragraph.)

Sept. 7 (Bloomberg) -- Reserve Bank of Australia Governor Glenn Stevens signaled a willingness to keep interest rates on hold while the nation’s consumers retrench and global financial markets create instability for the “foreseeable future.”

“Periods of sudden increases in anxiety within international financial markets are moments when, if at all possible, it is good to be in a position to be able to maintain steady settings,” he said in prepared remarks today in Perth.

In his speech, Stevens said households watching global and local events “may continue their precautionary behavior for longer than otherwise” and help weaken demand compared with the central bank’s August forecasts. “If so, that may act to curtail the upward trend in inflationary pressures that has, up to this point, appeared to be in prospect,” he said.

Australian households are saving more as assets including stocks and houses decline in value after the RBA raised rates to a developed-world high of 4.75 percent. Stevens held rates yesterday at that level for a ninth straight meeting, citing “unsettled” international markets.

“It is too soon to see much evidence of a concrete impact of these events on the global economy,” he said today.

Responding to questions from the audience, Stevens said policy makers need to keep an open mind on the timing and direction of any decision to change rates. He declined to speculate on the near-term outlook for monetary policy.

Mining Boom

A 23 percent increase in the local dollar in the past two years, spurred by a boom in mining investment to meet demand from India and China, is hurting the manufacturing and tourism industries.

Stevens reiterated the observation by his deputy, Ric Battellino, last month that in the past year economic growth seems to be turning out slower than expected and underlying inflation higher.

“A key question is whether that is just the vagaries of statistical noise and lags, or whether it is telling us that the combinations of growth and inflation available to us in the short term are less attractive than they seemed a few years ago,” he told the Western Australian Chambers of Commerce and Minerals & Energy today.

The central bank’s two preferred measures of annual inflation accelerated to 2.7 percent in the second quarter, compared with a gain of about 2.3 percent in the first quarter. The RBA aims to keep underlying inflation in a range of 2 percent to 3 percent on average.


The central bank has relied on the local dollar’s strength to temper gains in consumer prices. The currency reached $1.1081 on July 27, the highest level since it was freely floated in 1983.

Australia is undergoing what Stevens and other economists call a structural change -- a shift in productive capacity to the mining and energy industries while the stronger currency hurts education, tourism and manufacturing exporters.

Clouding the outlook is concern the world’s largest economy is slowing. Employment in the U.S. unexpectedly stagnated in August as employers became less confident in the strength of the recovery, and the jobless rate held at 9.1 percent, according to a Sept. 2 report.

In Europe, there’s little sign of a rebound. France’s economy stalled in the second quarter, Germany’s expanded 0.1 percent and the U.K.’s gross domestic product grew 0.2 percent. Joblessness is rising from Russia to Belgium.

‘Complex Forces’

“More than at most times in my professional life, Australia’s economy faces a very unusual, and powerful, set of complex forces,” Stevens said today.

Australian employers added 41,400 jobs during the first seven months of the year, the weakest January-July period since 2003, as a rising currency hurts manufacturers including BlueScope Steel Ltd.

Even so, Stevens said Australia is in a good position to face the present challenges, with record-high terms of trade, unemployment near 5 percent, a stable financial system and “respected” sovereign credit globally.

“We have our problems, but with some good sense and careful judgment we ought to be able to navigate what lies ahead,” he said.

After Stevens spoke, a government report released in Sydney showed Australia’s GDP expanded 1.2 percent in the three months through June, faster than the 1 percent median estimate of economists surveyed by Bloomberg, after a revised 0.9 percent contraction in the first quarter.

--Editors: Brendan Murray, Garfield Reynolds

To contact the reporter on this story: Michael Heath in Sydney at Jason Scott in Perth at

To contact the editor responsible for this story: Stephanie Phang at

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