Australia Sees Plenty Of Room To Cut Rates
05/30/2012| 01:39am US/Eastern
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--Parkinson says Australia can cut rates if required
--Plenty of room to ease fiscal levers too
--Says Aussie dollar would fall dramatically in a crisis
SYDNEY -- Australia can ease monetary policy if Europe's economic problems deepen further and trigger a fresh global crisis, the country's top economic civil servant said Thursday.
The remarks by Martin Parkinson, the secretary of Australia's Treasury department, come just days ahead of the central bank's June policy meeting where board members are expected to cut the official rate by 25 basis points to 3.50%. His comments also follow a warning by Glenn Stevens, governor of the Reserve Bank of Australia, or RBA, who earlier this week cautioned that China's economy has slowed sharply.
In a testimony to lawmakers that was dominated by Europe, Mr. Parkinson talked up the local economy but acknowledged that policy makers have contingency plans in place and cutting interest rates would be the first lever to pull.
"If Greece comes out of the euro and causes some disruption, then it doesn't really require much of a response from us. The question is if Greece comes out of Europe or something else happens in Europe that leads to a total clogging of the global financial system and a global recession is imminent then it's a different world. All bets are off," Parkinson told lawmakers.
"We do have considerable capacity to move on monetary policy. In that environment our fiscal position is so healthy we can provide stimulus," Mr. Parkinson said.
Another buffer for Australia would likely be a sharp depreciation in the Australian dollar, Mr. Parkinson said. The high yielding currency has lost around 10% form its 2011 highs and some analysts are tipping further losses.
"The exchange rate in a crisis will move very dramatically and that will help offset the shock on the real economy," he said.
Policy makers in Europe are grappling to contain the region's spiralling fiscal crisis with growing fears that Greece may exit the single currency or that Spain will need external aid, two events that could trigger turmoil on global markets.
Direct exposure for Australia to Europe's crisis is minimal. The bigger threat is through any slowing of global trade or disruption to credit markets. But local banks could avoid the public debt market for up to six months if required, the treasury chief said, echoing similar remarks from the banking supervisor.
The treasury chief said global markets have lost confidence in Europe's political leaders to solve the region's crisis and officials across the world have a unified message for Brussels.
"This has got to be dealt with it, we can't deal with it, you have got to deal with it," Mr. Parkinson said.
-By Enda Curran, Dow Jones Newswires; 61-2-8272-4687; enda.curran@dowjones.com
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