Rates on hold as economic risks remain
A Tony Abbott-led government will face continuing global economic headwinds with a new report warning major risks remain around every financial corner.
As the Reserve Bank kept official interest rates steady at 2.5 per cent yesterday, the Organisation for Economic Co-operation and Development used an update on the state of the economy to argue against nations engaging in deep spending cuts or central banks lifting interest rates.
The Paris-based think tank said there had been a moderate recovery in some parts of the world, led by a pick-up in the US and Japan. But with major emerging economies going backwards or slowing, it said the risks facing the global economy were still substantial.
"While the improvement in growth momentum in OECD economies is welcome, a sustainable recovery is not yet firmly established and important risks remain," it said.
"It is necessary to continue to support demand, including through unconventional monetary policies, in order to minimise the risk of the recovery being derailed."
The Reserve Bank used its statement announcing official interest rates were on hold at their equal 54-year low to also issue its own warning to Mr Abbott's likely government.
Governor Glenn Stevens said rates were at an "appropriate" level for an economy that was likely to grow below trend for a little while yet.
"In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment," he said.
The below-trend growth is likely to be confirmed today with the June quarter GDP result tipped to show the economy expanded by a subdued 0.5 per cent.
The Reserve's decision was not unexpected. It followed the decision last month to cut rates to a fresh 50-year low, the first time it had reduced interest rates during an election campaign.
The Australian Bureau of Statistics reported retail sales grew just 0.1 per cent in July.
The national figure was held down by a 0.7 per cent drop in WA.
Westpac chief economist Bill Evans said the Reserve was likely to become more aggressive in its language once the Federal election was over.
