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Market:	ASX 200
Sector:	Aerospace
Epic:	ASX200
News:	Latest news
Web Site:	Australia Market Wrap
Other Articles:	25-06-200923-06-200918-06-2009

RBA Governor urges Australians to have confidence

The Reserve Bank Governor, Glenn Stevens, has urged Australians to have "quiet confidence" about their future while warning the Federal Government against wasteful spending dressed up as measures to boost flagging consumer spending, at a dinner of the Committee for Economic Development of Australia Council in Melbourne last night.

"That said, it is still important for fiscal measures to pass the 'good policy' test. Poor public policy proposals should not be accepted simply because they are presented as boosting short-term aggregate demand," he said.

Mr Stevens also urged Australians not to give in to "gloomy talk" about the economy. Mr Stevens said "the biggest mistake we could make would be to talk ourselves into unnecessary economic weakness" given the underlying strength of the local economy.

Yes, the situation is serious. The long-run prospects for the Australian economy have not deteriorated to the extent that might be suggested by the extent of some of the gloomy talk that is around."

"We ought to go forward with some quiet confidence in our own abilities and in the opportunities that are on offer."

No crash in housing prices in Australia

On why Australian house prices in Australia are different to the US, Mr Stevens said, "I suppose that one difference that we have to the US is that they built too many houses and they have got to work off that excess stock, which is actually one of the things that has put them in the recession," Mr Stevens said.

"The rate of house constructions is at its lowest point for 20 or 30 years, and the stock is coming down quite quickly now actually, but that is a painful process.  We didn't build too many. We're probably not really building enough. That's what most of the experts say.

He said Australia's lack of a "supply overhang" was no guarantee prices would not fall.

"Indeed, prices probably are falling - gently," he said.

"But I think there are enough differences in the US versus Australia dynamic between the US.

"We certainly shouldn't assume there is going to be a crash but some combination of a general decline in prices and gradual growth of income (was expected)."

Interest rate cut

A Reserve Bank assistant governor, Malcolm Edey, said the next official inflation figures were likely to show headline inflation "dropping quite smartly" as petrol prices continue to retreat towards $1 a litre.

Markets expect the Reserve Bank to cut interest rates by between 0.75 and 1 percentage points when it meets next month. Mr Stevens said the bank would continue to "strike the right balance" between sheltering growth and containing inflation.

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