RBA Chief: Despite the Challenges, Australian Market Remains Profitable
The Australian economy is in generally healthy state, said Reserve Bank of Australia (RBA) governor Glenn Stevens downplaying some indicators that worry some investors.
Speaking at the Credit Suisse 15th Asian Investment Conference 2012 held on Tuesday in Hong Kong, Stevens allayed fears that the latest spikes in Australian house prices and household debts could lead to disconcerting economic problems ahead.
He reminded his audience that "the arrears rate on mortgages, at 60 basis points, is quite low, and that the rate of new construction of dwellings in recent years has been low relative to population needs."
The RBA chief stressed that amidst the challenges facing specific sectors of the Australian economy, the overall domestic picture remains relatively robust considering what ails many global economies.
Stevens admitted too that the local economy currently runs on two-speed pace - in which the mining sector fuels much of the gains while creating difficulties on other industries due mostly to the consistently rising Australian dollar, which he noted has climbed to record levels never seen in the past 30 years.
The most vulnerable sectors right now, he added, were manufacturing, housing and retail, with some worrisome funding issues erupting in the banking industry.
In the past few months, major Australian banks have lifted their interests' rates and directly contradicted the rates cuts and holds implemented by the RBA over the past five months.
The banks argued that the financial distress in Europe has led to the tightening of global funding sources, compelling them to hike rates in order to protect profit margins and preserve credit ratings, which the central bank had affirmed.
The challenges now prevailing were all reflective "the problems that have occurred in some other countries," Stevens said.
But he expressed confidence that the rest of the world "see an economy that has not experienced a significant recession for 20 years, that has strong banks and little government debt - and that debt remains AAA-rated."
"(That economy) experienced only a relatively mild downturn in 2008-2009, that made up the decline in output within a few months, and that has continued to expand, albeit at only moderate pace, since then," the RBA boss was reported by SmartCompany as saying.
Yet Stevens acknowledged that if the global economic situation further deteriorates, Australia will most definitely feel the heat, which he said highlighted the importance of stabilising the standing of both the sovereigns and banks over the long term.
At present, "interbank activity remains constrained and unsecured funding remains expensive for banks. It is noteworthy that large corporates can borrow more cheaply than can banks with higher credit ratings, such is the odium investors attach to banks (though this is not confined to Europe)," the RBA chief said.
Notwithstanding all these gloom, Australia remains attractive to international investors, Stevens said, adding that they need not worry as the local market carries premium "rates of return that are high by international standards, even though they are low by Australian historical standards."
Such keen investors' interests were reflected by the rising attention given to the Australian dollar denominated assets and sovereign debt, according to Stevens.
These investors have been lured by the rich promises that were almost naturally attached with the robust Australian market.
"They understand the potential returns on the mineral and energy wealth stored in or around the Australian continent, and that our terms of trade have over the past year been higher than at any time for more than a century," Stevens pointed out.