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| Version 1 | Version 2 |
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| Reserve Bank has room to cut rates further as markets 'drop their bundle' | Reserve Bank has room to cut rates further as markets 'drop their bundle' |
| (7 months later) | |
| The Reserve Bank has room to cut interest rates again if global investors continue to panic and the uncertainty sweeping financial markets hurts the Australian economy, governor Glenn Stevens has said. | The Reserve Bank has room to cut interest rates again if global investors continue to panic and the uncertainty sweeping financial markets hurts the Australian economy, governor Glenn Stevens has said. |
| As Australian shares fell again on Friday in the wake of more selling in Europe and the US overnight, Stevens said that continued low inflation meant the bank had the flexibility to ease rates further. | As Australian shares fell again on Friday in the wake of more selling in Europe and the US overnight, Stevens said that continued low inflation meant the bank had the flexibility to ease rates further. |
| Speaking at a House of Representatives economics committee hearing in Sydney, Stevens said: “With inflation unlikely to cause a problem by being too high over the next year or two, the statement after the recent meeting indicted that the board retains the flexibility to ease further, should that be helpful.” | Speaking at a House of Representatives economics committee hearing in Sydney, Stevens said: “With inflation unlikely to cause a problem by being too high over the next year or two, the statement after the recent meeting indicted that the board retains the flexibility to ease further, should that be helpful.” |
| Stevens said that investors were “dropping their bundle” and policy makers would have to wait to see how that plays out. | Stevens said that investors were “dropping their bundle” and policy makers would have to wait to see how that plays out. |
| “One key question will be whether the recent financial turbulence itself will have a material negative effect on aggregate demand – in Australia or abroad,” he said. | “One key question will be whether the recent financial turbulence itself will have a material negative effect on aggregate demand – in Australia or abroad,” he said. |
| “I don’t expect that we will be able to answer that question for a little while yet.” | “I don’t expect that we will be able to answer that question for a little while yet.” |
| The ASX/S&P200 fell more than 1% on Friday morning as the world’s markets continued to struggle against a wave of bearish sentiment. It recovered by lunchtime to stand 0.38% lower, or 18 points down at 4,802 points. | The ASX/S&P200 fell more than 1% on Friday morning as the world’s markets continued to struggle against a wave of bearish sentiment. It recovered by lunchtime to stand 0.38% lower, or 18 points down at 4,802 points. |
| In Japan, where shares have been crushed since the central bank moved to negative interest rates last month, trading resumed after a public holiday on Thursday and immediately plunged again. The average was nearly 4% lower at lunchtime on Friday with investors unnerved by the rising yen, which has undermined government attempts to stimulate exports and inflation. | In Japan, where shares have been crushed since the central bank moved to negative interest rates last month, trading resumed after a public holiday on Thursday and immediately plunged again. The average was nearly 4% lower at lunchtime on Friday with investors unnerved by the rising yen, which has undermined government attempts to stimulate exports and inflation. |
| The FTSE 100 index in London lost more than 2% on Thursday and the Dow Jones was down 1.6% in New York as investors dumped stocks and sought the safe havens of the yen, gold and government bonds. | The FTSE 100 index in London lost more than 2% on Thursday and the Dow Jones was down 1.6% in New York as investors dumped stocks and sought the safe havens of the yen, gold and government bonds. |
| Banks and companies exposed to lower commodity prices were among the biggest losers in London. Falling oil prices also dragged the market lower with New York crude hitting a 13-year low of $26.34. Gold was the beneficiary, ticking up to a 12-month high of $1,235 an ounce. | Banks and companies exposed to lower commodity prices were among the biggest losers in London. Falling oil prices also dragged the market lower with New York crude hitting a 13-year low of $26.34. Gold was the beneficiary, ticking up to a 12-month high of $1,235 an ounce. |
| Stevens told MPs that fears of a global recession were “overdone” and pointed to the recent strength in Australia’s labour market as a positive sign. | Stevens told MPs that fears of a global recession were “overdone” and pointed to the recent strength in Australia’s labour market as a positive sign. |
| “If it turns out that the strength is just temporary, then the outlook is still for moderate growth, but no near-term acceleration. | “If it turns out that the strength is just temporary, then the outlook is still for moderate growth, but no near-term acceleration. |
| “If, on the other hand, recent trends were to continue, the income gains coming from higher employment may start to feed into stronger demand growth, which would probably lead in due course to higher levels of investment. | “If, on the other hand, recent trends were to continue, the income gains coming from higher employment may start to feed into stronger demand growth, which would probably lead in due course to higher levels of investment. |
| “Alternatively, if demand growth were to be in areas that require relatively little capital to support the labour employed, then the apparent weakness in capital spending outside mining could be of less concern anyway.” | “Alternatively, if demand growth were to be in areas that require relatively little capital to support the labour employed, then the apparent weakness in capital spending outside mining could be of less concern anyway.” |
| Stevens noted forecasters now expect a bit less growth in the global economy than they did a few months ago although expectations for Australia’s trading partner group remain for growth to be a bit below average. | Stevens noted forecasters now expect a bit less growth in the global economy than they did a few months ago although expectations for Australia’s trading partner group remain for growth to be a bit below average. |
| Inflationary pressures around the world looked subdued and interest rates would still be very low, even if short-term rates moved up in the United States, he said. | Inflationary pressures around the world looked subdued and interest rates would still be very low, even if short-term rates moved up in the United States, he said. |