Economy ‘likely to overcome global turmoil’

Mr Stevens’ positive view appears to lower the chances of the Reserve Bank cutting the official cash rate further from its current record low level of 2 per cent.

Reserve Bank governor Glenn Stevens says he wishes he had a neat answer for why businesses outside the mining sector have not stepped up their investment.

“There is still a pretty good chance that we will come out of this episode fairly well, and much better than we came out of previous episodes of this type”, he said.

Mr Stevens and his economics team will also face questions on China, Australia’s number one trading partner, given its slowing economy and in the wake the extremely volatility in its share market.

The US Federal Reserve has also decided to hold its key interest rate at zero, due to worries that China’s slowdown will hit the United States economy.

RBA governor Glenn Stevens told a parliamentary committee on Friday that he was expecting unemployment was going to move higher than the recent peak of 6.3 per cent.

“Some fretting about the first increase in USA interest rates for nine years is to be expected, no matter how well telegraphed it has been”, he told the parliamentary committee. “US dollar-funding rates really reverberate around the world, especially into the emerging world”, Mr. Stevens added. Some cushioning has come from a lower Australian dollar.

Unemployment will fall if the non-mining economy continues to pick up, and the Australian dollar’s slide to around 71 USA cents is helping to achieve that, Mr Stevens said.

“It still seems to me very likely that global interest rates will be quite low for quite some time yet”, he added.

“The more important factor, though, will be the pace of subsequent increases”.

Mr Stevens said “they need to [go up] for the US’s sake”.