More upbeat talk from Reserve Bank governor, Glenn Stevens about the health of the Australian economy, and the banking system.
In a speech in Sydney late yesterday he discussed possible international shocks that ranged from the plunge in oil prices to weaker world growth – including China’s slowdown – to navigating global monetary obstacles.
Mr Stevens noted that the global banking system was far more resilient than it was eight years ago before the GFC, while the Australian banking system has been strengthened in the past couple of years.
He told the annual ASIC forum in Sydney yesterday that the economy is “adjusting quite well” to lower commodity prices (terms of trade down 35% over the past few years).
“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."
Mr Stevens also noted that the economy seems to have been picking up recently, but also again questioned the health of the labour market.
“In the case of business surveys, better conditions seem generally to have continued in the early part of 2016, though labour market data have been more ambiguous," he said.
"Leaving aside the potential for macroeconomic policy responses, the economy’s inherent ability to adjust has been on display through both phases of the mining boom. Of course we should always be looking for ways to improve that flexibility, but I think it should be said that businesses and their workforces have been much more flexible than once used to be the case,” Mr Stevens said.
"The local economy has been improving and the financial system overall gaining in resilience, albeit with a few pockets to watch. Given that and a reasonable track record of adapting to shocks, we have some grounds for confidence in our capacity to negotiate whatever lies ahead,” he concluded his speech.
The Aussie dollar jumped about two-tenths of a cent to the day’s high of 76.09 US centsin the wake of his comments which desperatevtraders took as meaning no more rate cuts.
Mr Stevens told the forum in the final speech of the two days of discussions that "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. That said, the adjustment is still a work in progress.”
He said he 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, and that the banks were not exposed to falling oil and gas prices.
Mr Stevens said Australia’s banking system had “fairly modest direct exposure” to falls in oil and other commodities, with lending to businesses involved in mining and energy accounting for only about 2% of banks’ total lending.
And Australian banks’ asset quality has generally improved over the past 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".
On property, Mr Stevens said the recent tightening of lending standards by regulators (APRA, ASIC and RBA) had been “timely”.
“So often over the years, tighter standards tended to come too late and reinforced a downturn after it had begun," he said. "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.
"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."
Bureau of Statistics figures released yesterday showed a fall in Sydney prices in the final three months of 2015 (as we know from other sources) and a 0.2% rise nationally in the three month period. Prices rose 8.7% in the year to December (more than 13% for Sydney).
