RTTNews - The Australian economy will be well placed for expansion towards the end of this year and inflation will continue to decline for some time, giving room for further monetary easing, the Reserve Bank of Australia Governor Glenn Stevens said Thursday.
Speaking in Townsville, Australia, Stevens said, Our expectation remains that the economy will be well placed for expansion towards the end of this year. Initially it will be fairly gradual, in part because of the global factors.
The central bank chief said it is likely that activity has remained subdued in the June quarter. The rapid decline in business investment is almost certainly continuing. While consumer spending has held up quite well so far, it may be weaker over the next few months, as the one-off government payments pass and rising unemployment starts to weigh on incomes and willingness to spend, he said.
Stevens noted that if the economy expands only gradually, the degree of spare capacity in the economy will tend to increase for a while, and inflation will most likely continue to decline for some time, indicating that some scope remains to ease monetary policy further.
The emphasis on 'durable' is important, he said.
The aim of Australia's monetary policy is to lower debt-servicing costs, assist efforts to reduce leverage and support demand. Stevens said it would be counterproductive if further reductions in interest rates induced a large number of marginal borrowers into debts they could service only at unusually low interest rates.
Earlier, this week the central bank held its key rate unchanged at 3% after reducing the rate by a total of 4.25 percentage points since September 2008. The economy unexpectedly grew 0.4% in the first quarter after contracting 0.6% in the previous quarter.
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