Banks in Australia will be put to a test by the contagion of a looming global financial crises spiraling from Europe to the United States now facing a politically charged debt crisis.

In spite the innate resilience of local banks, fears of stagnant growth in the near term as a result of confidence crisis on the entire world financial sector also emerge.

According to a report by the Canberra Times quoting Reserve Bank assistant governor Malcolm Edey, the resilience of Australian banks will be undermined by some expansion plans and they would not be growing as rapidly as they used to.

Global financial threats

American politicians have been unable so far to come to a deal that would prevent the United States from defaulting on its debt for the first time in its history on August 2, while Moody's Investors Service downgraded yesterday Greece's sovereign debt rating by three notches, leaving it one away from default.

The Canberra Times report said that though it would be hard to predict as to how the global financial crises would rebound to the Asia-Pacific region, Mr Edey assured of the limited direct exposures of Australian banks to sovereign debts of other countries.

''So potential effects on Australian banks' overall asset quality are not an issue,'' he said in the report.

Australia's banks had also significantly strengthened their positions against disruptions in global wholesale funding markets since the global financial crisis, making them ''more resilient to any disruptive event in international credit markets, should it occur''.

Inflation and company profitability

The latest production cost increase index, otherwise referred to as the business inflation index had put more pressure on the profitability of local firms rather than on the core inflation.

CommSec chief economist Mr Craig James said business inflation, which looks at increases in costs paid by companies, has put the pressure on companies and their profit targets.

"Cost pressures would have greater relevance on profitability rather than inflation,'' he noted said.

Mr James, also pointed out that business inflation was very narrowly based; building material

The Reserve Bank has indicated that tomorrow's inflation figures would be ''important in helping to shape views about inflation, and therefore the future path of interest rates''.

Mr James said most economists expected the underlying inflation rate would be right in the middle of the Reserve Bank's 2-3percent target band.

''Given the softness of the economy, we expect the Reserve Bank to stay on the interest rate sidelines for the next three to four months at least,'' he said.

Also yesterday, figures from the Australian Institute of Petroleum showed petrol prices increased by 1.1c to 141.8c a litre nationally, and dropped by 1.1c to 141c in the ACT, the Canberra Times said.