The outlook for the global economy, especially in light of the recent banking stresses in the United States and Switzerland, is one of many uncertainties, Philip Lowe, the Reserve Bank governor, told the National Press Club yesterday.
“Globally, inflation remains too high and services price inflation is proving to be worryingly persistent,” Lowe said.
“Global economic growth has slowed to a below-average pace, and the outlook – even before the recent banking problems – was for this to continue.
“The past week or so has seen financial stability concerns ease a little, but even so the recent problems will result in tighter financial conditions around the world as banks reassess risk and seek to reassure depositors that their funds are secure, including by taking a more cautious approach to lending. It is still unclear what effect this will have on global economic growth, but it is another headwind.
“Here, in Australia, the impact of the banking stresses overseas has been limited,” Lowe said.
“Our financial markets are working well and Australia’s banks remain well positioned to provide the credit and other financial services that the economy needs.
“Our banks have an unquestionably strong capital position and liquidity reserves that are well above prudential requirements.
“They also have diversified deposit bases and carry very limited interest rate risk, with APRA requiring the largest banks to hold capital against this risk as part of their core requirements – something that regulators elsewhere in the world have not done.
“This all means that, as APRA Chair John Lonsdale said last week: Australians can be confident that ‘their banking system is among the strongest and most resilient in the world, with prudential safeguards above and beyond minimum international requirements’.
“This assessment is reassuring, but it does not mean that Australia is immune to stresses abroad. While the authorities in the United States and Switzerland have taken decisive steps to maintain confidence in their banking systems, the situation is still fragile and recent events have put the spotlight on how shifts in sentiment can result in rapid outflows of deposits.
“Given this, the RBA and the other members of the Council of Financial Regulators are continuing to monitor the global situation carefully and we are in regular contact with our counterparts overseas.”