November 25, 2011
TIME is running out for European policy makers to find answers to the region's sovereign debt crisis, and failure will sharply increase risks to the Australian economy, Reserve Bank of Australia Governor Glenn Stevens said last night.
"The issues (in Europe) are pretty serious, and I think we are fast coming to the point where all the parties who have a role to play in getting to the solution really have to hurry up and do it," he said. Otherwise, the probability of a major problem will rise sharply, he added.
Mr Stevens repeated the RBA's recent warning the biggest threats to the Australian economy are external, but said the economy is "travelling OK" at the moment.
The RBA cut its benchmark cash rate by one quarter of a percentage point to 4.5 per cent earlier this month, warning Europe's problem threatened to spill into a major crisis for the world economy.
Asked what he thought China would do in the event of a full blown crisis, Mr Stevens said authorities there would likely ease policy settings if they thought the inflation threat had eased sufficiently.
China is Australia's largest trading partner, and its sizeable policy response to the 2008 global financial crisis helped Australia avoid a recession.
Earlier, Mr Stevens defended the RBA's policy decisions over the last year, saying they were the right calls, but said more time is needed to see if he is right.
"In my view, these judgements over the past year were right calls," he said. "But in truth we will not know for a while, such are the lags in monetary policy," he added.
The RBA has had a tough year juggling what Mr Stevens said were the "big forces" of the biggest commodity price boom in a decade, and the biggest deleveraging in a decade in the world economy.
Australia's economy is feeling the benefit of a massive mining boom, fanned by China's growth and strong prices for key exports of coal and iron ore. But signs of stress in the non-mining sector of the economy are also evident. A high Australian dollar has been a strong headwind for tourism and exporting manufacturers in 2011.
Article by James Glynn From: Dow Jones Newswires