By Jacob Greber and Heidi Couch
Aug. 26 (Bloomberg) -- Australian interest-rate increases will be determined by the strength of consumer spending and economic growth as government stimulus measures are withdrawn, Reserve Bank board member Roger Corbett said.
“There will certainly be a turn-up in the fullness of time, and interest rates will need to go up,” Corbett, 66, who is also a director of Wal-Mart Stores Inc., said in an interview yesterday. “What level they go up to will depend on circumstances at the time.”
Consumer spending helped Australia avoid a recession after the government distributed more than A$20 billion ($17 billion) in cash to households following the collapse of Lehman Brothers Holdings Inc. Central bank policy makers said last week their decision on when to raise borrowing costs from a half-century low will need to balance the risk of fueling inflation with prematurely killing off confidence and demand.
“How consumer demand holds up in light of no consumer stimulus” will be “one of the determining factors in how quickly our economy in Australia recovers,” said Corbett, one of nine members of the central bank’s policy-setting board and a former chief executive officer of Woolworths Ltd., the nation’s biggest retailer.
Central bank Governor Glenn Stevens said this month that policy makers will have to raise the overnight cash rate target from its “emergency” level at some stage as the economy rebounds from the global recession.
‘Normal Level’
A more normal level for the overnight cash rate target is “a good deal north” of the current 49-year low of 3 percent, Stevens said on Aug. 14. Policy makers slashed the benchmark rate between September and April by a record 4.25 percentage points.
Asked to speculate about what the Reserve Bank’s “neutral” rate is, Corbett said: “That’s up to the governor, but his general comment that we’re at traditionally low levels, and through time they will go up, is patently obvious.”
Traders forecast the central bank’s overnight cash rate target will be 169 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 4:52 p.m. in Sydney yesterday. At the start of July, they tipped 63 basis points of gains.
“We’ve been very fortunate in Australia; we’ve only had one negative quarter” of gross domestic product, Corbett said in the interview at his Sydney office overlooking the city’s harbor. “And I’d be quite surprised if we have another.”
Economic Growth
GDP unexpectedly rose 0.4 percent in the first quarter, rebounding from its first contraction in eight years in the previous three months, as lower borrowing costs and government stimulus stoked domestic demand. Second-quarter figures will be published on Sept. 2.
While there “is always a risk of a double dip” in growth, “I’m pretty confident that in Australia the fundamentals are starting to look very promising,” Corbett said. “We’re starting to see much more confidence in consumer demand.”
Consumer confidence jumped this month to the highest level in almost two years and retail sales rose 2 percent in the second quarter.
“How we perform without the stimulus will be one of the litmus tests of how well our recovery is going,” particularly between now, Christmas and Easter, Corbett said.
There will come a time in Australia and the rest of the world when “constraint will be necessary,” he added.
“And that restraint in most occasions will be needed before” a full global recovery emerges. “It’ll probably be needed whilst unemployment is still rising.”
‘Surprisingly Good’
Australia’s jobless figures have “been surprisingly good,” rising less than the government forecast this year, Corbett said. The unemployment rate held at 5.8 percent last month as employers unexpectedly added 32,200 workers.
The government predicted in May that the unemployment rate will peak at 8.5 percent next year.
“Let’s hope that those upper-end figures are not reached, and I think there’s good reason they won’t be,” Corbett said.
“The fundamental reasons Australia has done so well are two-fold; our banking system” is sound, “and then, of course, there is demand from China for our minerals,” he added.
Corbett also said the nation’s benchmark S&P/ASX 200 index of stocks, which has climbed 38 percent since March, is an “early indicator of recovery.”
“The fact the stock market has done sustainably well over the last three or four months is a very positive effect for the economy,” he said.
While the “world has a fair way to go yet in the recovery phase,” the next “wave of inflation is in effect being sown now.”
Corbett, who is also deputy chairman of newspaper publisher Fairfax Holdings Ltd., has been a member of the Reserve Bank’s board since December 2005.
To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.netHeidi Couch in Sydney hcouch@bloomberg.net.
Posts
No comments:
Post a Comment