Australia’s economy is “adjusting quite well” to lower commodity prices and has more fiscal and policy scope to respond to a global downturn than most countries, Reserve Bank Governor Glenn Stevens said.
Stevens’s speech spanned possible international shocks that ranged from the plunge in oil prices to weaker world growth -- including China’s slowdown -- to navigating global monetary policies. He noted that the global banking system is far more resilient than it was eight years ago.
“The fact that Australia has a sound and credible macroeconomic policy framework, which could, if needed, respond as appropriate to significant negative events is also a good starting point,” he said in the text of the speech in Sydney. “Even with interest rates at already low levels, and public debt higher than it was, there would, in the event of a serious economic downturn, be more room to ease both monetary and fiscal policy than in many, indeed most, other countries.”
The RBA chief was speaking at a forum that has been reviewing regulatory measures in the shadow of financial turbulence in China, negative rates in Japan and Europe, plunging commodity prices led by oil and cross-current policy. The governor was confident that despite the risks to producers and investors, the fall in the crude price was a positive overall. He also noted that his economy is coping with falling commodity prices.
“The Australian economy is adjusting quite well in the circumstances -- certainly far better than in other episodes of commodity price fluctuations we have seen in history,” Stevens said. “That said, the adjustment is still a work in progress.”
The governor also talked up regulatory measures taken to slow lending to real estate investors in Sydney and Melbourne, where prices had been surging.
“These measures have occurred ahead, so far as one can tell, of the point in the cycle when measures of asset quality start to deteriorate,” he said. “Some moderation in house prices in some of the locations where they had been rising most rapidly, while not the direct objective of the supervisory measures, is also, in my judgement, helpful.”
He also pointed out that Australia’s banking system has “fairly modest direct exposure” to the falls in oil and other commodities, with lending to businesses involved in mining and energy accounting for only around 2 percent of banks’ total lending.
Australian banks’ asset quality has generally improved over the last couple of years, and the RBA doesn’t at this stage see “a material problem in Australian financial or non-financial entities accessing capital markets.”