Tuesday, July 01, 2008

On one hand Australia's economy is..

That's how the Reserve Bank sums it up in today's decision to keep interest rates on hold.

It doesn't know whether we are about dive or soar, and
says so

"As a result of earlier decisions by the Board, additional rises in market interest rates and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of last year. Conditions in international financial markets remain difficult, with credit concerns resurfacing in the past month.

The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs, is working to restrain demand. Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly. There have also been some tentative signs of an easing in labour market conditions.

The rise in Australia’s terms of trade that is currently occurring will work in the opposite direction. It will add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming. At the same time, rising prices of oil and a range of other commodities are adding to global inflationary risks...

Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, while the inflation outlook remains concerning, the Board’s assessment continues to be that demand growth will be moderate this year."