RTTNews - Tuesday, the minutes of the Reserve Bank of Australia monetary policy meeting on July 7 showed that economic activity in the economy was not as weak as expected.
At the meeting, the Board decided to leave the cash rate unchanged at 3%, noting that the current stance of monetary policy supported sustainable growth and low inflation, leaving adequate flexibility to respond to developments as and when needed.
The Board noted that the early and substantial easing of both the monetary and fiscal policy had been effective in supporting demand, but the full effects would still be coming for some time.
The members said exports were surprisingly strong, supported by higher demand from China. In the domestic market, household spending picked up, due to the fiscal stimulus measures and low interest rates, which in turn led to an improvement in retail sales. Housing approvals recorded strong increases, and there were signs that house prices were picking up, with the increase being more widespread.
Moreover, consumer and business confidence had improved from their lows.However, members agreed that the labor market indicators were likely to remain weak for sometime, even as employers tried to minimize job shedding.
Therefore the Board indicated that the outlook for the economy was for a gradual recovery, beginning later in the year, with the downside risks to that having diminished.
Meanwhile, the Board members believed there was evidence to show that the global economy was stabilizing, with production picking up in many Asian countries. Moreover, credit conditions showed signs of improving.
However, the Board said a recovery in the global markets was likely to be slow, reflecting weakness in household consumption in developed countries as also the effects of the crisis on the financial system. Given these developments, the Board indicated that the most likely scenario for the world economy was subdued growth for the next one or two years, with unemployment and spare capacity in the developed countries likely to increase further. Inflationary pressures in the advanced countries were also generally expected to decline over the next period.
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