RBA Lowe: Further AUD Fall Would Assist Econ Rebalancing * Lower AUD, Confidence, Low Rate Keys To Trend Growth Outlook A weaker Australian dollar would be helpful in rebalancing the economy away from mining investment, but the central bank is uncertain if a further currency realignment will happen, Reserve Bank of Australia Deputy Governor Philip Lowe said Thursday. Lowe made the comments in a speech to the CFA Australia Investment Conference entitled: Investment and the Australian Economy. Whether we will see a further realignment remains unclear, but, from todays perspective, a lower value of the Australian dollar would assist in lifting investment and activity in the sectors that have been constrained during the years of the mining investment boom, Lowe said. Lowe said the depreciation of the Australian dollar since April is a welcome development and a further depreciation would be helpful in rebalancing growth in the economy. Such a rebalancing is needed to bring the economy back to trend growth from below average growth recently. Lowe said the level of mining investment is likely to decline substantially over the period ahead as existing projects are completed. The exact profile remains difficult to determine, but it would not be surprising if mining investment, relative to GDP, declined by 3 percentage points or more over coming years. He said just as the currency rose when investment in Australia was very high and it was expected to fall as mining investment unwinds and investment in developed economies picked up. This process has started, although it has been interrupted recently, partly due to the changed outlook for U.S. monetary policy, Lowe said. The currency is now around 8% lower than the peak in April on a trade-weighted basis and while it is still too early the see the impact on investment, prospects had improved in some areas of economy like parts of the tourism and manufacturing industries, he said. The RBAs outlook is for a gradual lift in the non-mining economy over the next couple of years and that outlook is based on a lower value of the exchange rate together with improvement in business confidence and low interest rates, Lowe said. Indeed, our expectation is that this will take place, with growth in non-mining investment predicted to pick up to at least high single-digit rates within the next couple of years, Lowe said. He, however, reminded that this is a forecast and there were a wide range of uncertainties around it. Lowe said there was uncertainty over the recent improvement in confidence will be sustained. If global growth is in line with most forecasters central outlook, it is quite possible that confidence, both overseas and in Australia, will be sustained at a higher level than it has been in recent times. There are, however, a range of things that could go wrong, with the latest wrangling over the U.S. debt ceiling providing just the latest example of developments that damage confidence, he said. The low level of interest rates is another important supportive factor with the impact evident across a range of indicators and further impact likely. Lowe said prices and turnover were increasing in the housing market and a modest rise in residential construction is underway, which is a welcome development. There are also signs of an increased appetite for borrowing, most notably among those purchasing a property to rent out, he said, adding, more generally, households seem prepared to move out a little along the risk spectrum in an effort to increase their expected returns. He didnt express any concern over this, though, saying the developments are creating new business opportunities, along with the steady growth in Australian population.
Posted on: Thu, 24 Oct 2013 03:23:58 +0000
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