Reserve Bank boss says quick recovery is unlikely, rates will remain on hold

Reserve Bank Governor Glenn Stevens has declared that while he expects to see signs of an economy recovery by the end of this year, he has warned that global economic growth will be slow in the early stages of the recovery.

“It is too soon to say this is beginning yet, though developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year,” Stevens said in a speech to the Canadian Australian Chamber of Commerce this morning.

“That said, most observers think that the early part of any new global expansion will be characterised by pretty slow growth.”

Stevens also lent some support of the Rudd Government’s growth forecasts contained in the federal budget, which had been ridiculed by the Opposition as being too optimistic.

Federal Treasury expects zero growth in 2008-09, and -0.5% growth in 2009-10. But Treasury expects the Australian economy to bounce back quite quickly, and is forecasting 2.25% growth in 2010-11 and then 4.5% in 2011-12.

“I don’t think they’re (the Government’s forecasts) are materially different from what we have ourselves,” Stevens said.

“It is possible to expect above-average growth, but we are not bouncing back to above-average growth quickly.”

Meanwhile, the release of the minutes of the RBA’s board meeting earlier this month have confirmed the view of economists that the board is likely to leave rates on hold while it assesses signs of global economic recovery and the impact of the Rudd Government’s stimulus packages.

“Taking into account the economic and market developments that had come to light over the past month, the major easing in monetary policy that had already taken place and the substantial fiscal stimulus that was being implemented, members judged that the best course for this meeting was to leave the cash rate unchanged,” the minutes said.

Most economist expect the RBA will now leave rates on hold for a few months, but is still likely to cut rates later in the year when unemployment increases.

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