Australia's economy is likely to contract in 2009 and its central bank has room for further monetary policy easing if needed, Reserve Bank of Australia Deputy Governor Ric Battellino said Tuesday.

Addressing the Urban Development Institute of Australia in Brisbane, Battellino said, Like all other economies, the Australian economy was very much affected by the extraordinary events of last September.

To address economic slowdown, the Reserve Bank has reduced its key interest rate by 400 basis points between September last year and February this year to a record low of 3.25%.

But the reality is that we cannot fully insulate ourselves from what is happening elsewhere in the world. As such, GDP is likely to fall in 2009, Battellino said. Earlier, the central bank had projected GDP growth of around 0.5% for this year. In the final quarter of 2008, the economy had contracted 0.5% from the previous quarter.

The deputy governor noted that disciplined monetary and fiscal policies in the earlier years, sound regulation and a prudent approach to lending by banks helped the country enter the difficult situation in a much better shape than other countries.

Expressing confidence, he said, Even so, Australia will remain one of the better performing economies in the developed world and be well placed to benefit from the renewed global expansion when it comes.

Battellino said the Chinese economy is not going to return to a 12% growth rate any time soon.

Elsewhere, RBA Assistant Governor for Financial Markets, Guy Debelle said the global financial system remains disrupted and it will continue to undermine the effect of the sizeable policy stimulus being provided at the moment.

Debelle said the pass-through of the reduction in the cash rate since last September to housing interest rates has been more complete than in almost any other developed country.

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