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IMF commentary on Australia; we’re looking pretty good!

The Reserve Bank of Australia should provide the first line of defence for the economy, should it be necessary, the International Monetary Fund (IMF) has claimed, and should take extra caution when it moves to lift the cash rate.

In a consultation paper on the Australian economy released yesterday, the IMF praised the government’s stimulus policy but emphasised that the RBA still had scope to lower the cash rate to revive the economy if necessary.

“We welcome the quick implementation of targeted and temporary fiscal stimulus. The stimulus provides a sizeable boost to domestic demand in 2009 and 2010 that will cushion the impact of the global recession,” the IMF said.

“There is scope for further fiscal stimulus if the outlook for growth weakens, although we would advise using monetary policy as the first line of defence.”

The IMF also warned against raising the cash rate too hastily.

“In view of the still fragile state of the global economy, the RBA should be more cautious than normal in tightening. The return of the cash rate to neutral can wait until there are clear signs that a sustainable recovery is underway.”

The paper also noted that while global events had slowed Australia’s economy the downturn had been milder than in most other advanced economies.

The IMF is projecting GDP of -0.5 per cent in 2009 and positive growth of 1.5 per cent in 2010. This is in line with OECD forecasts earlier this week of -0.4 per cent in 2009 – the mildest of all 30 OECD economies – and 1.2 per cent in 2010.

posted in Australia, Finance by Finance Help

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