Stevens positive despite global risks

Australia would be protected from a sharp downturn in China’s economy by lower interest rates and a flexible exchange rate, the RBA governor says.

Low interest rates and a falling Australian dollar are key to the economy getting past the mining boom and surviving China’s slowdown, the Reserve Bank says.

“It’s also worth noting that performance in the United States continues to improve”.

And if the US Federal Reserve has raised its key interest rate for the first time in six years, it will be a sign that the wash-up from the global financial crisis is finally over.

More important than the timing of the first Fed increase will be the pace of subsequent moves.

“I think one could be concerned about the possible spillover effects that might come from a hike”.

“There will be a lot of people in financial markets right around the world whose career experience to date does not encompass having seen the Fed raise the funds rate, so you have to think there’ll be a few upsets here and there”, Mr Stevens stated.

The RBA governor even implied that a hard landing for China’s economy, where annual growth would drop dramatically below 7 per cent, may not be enough to trigger another interest rate cut.

Mr Evans said it would take “a bit of time” for the Fed to come around to raising rates.

The USA central bank will have concluded its crucial two-day meeting just hours before Mr Stevens fronts the House of Representatives economics committee for the three-hour hearing on Friday morning.

Commodity prices have been falling for four years, hitting the resource-rich economy hard over that period.

“At some point they’re going to have to start coming up”.

Mr. Stevens said the Australian dollar has fallen by about 25% in the a year ago , and that adjustment was starting to have visible benefits for exporters, especially in service sectors.