RBA concurs Government stimulus way to go!

The Reserve Bank (RBA) has stated that they feel that the Federal Government's fiscal stimulus package and the large interest rate cuts will flow through to the economy, although it will take sometime for the full effect to be felt.

At the RBA's February board meeting it was stated that the Australian economy had been more resilient than other industrial economies in response to the financial crisis. Despite the 400 basis points worth of cuts to the cash interest rate since September last year as well as the large boost to Government spending the short-term outlook is still weak. As was stated in the minutes the profound influence from the global economy remained constant, and would have a significant negative effect on the domestic economy in the short term.

The Governments stimulus package is not expected to have an immediate impact on the near-term outlook in Australia. As weakness for demand remains slow and production output continues to be weak the short-term is difficult to predict. In a sign the RBA might be prepared to adopt a wait-and see attitude to its future deliberations the board said they would be guided by the data flow in the ensuing months.

The minutes also stated that data would be important to future policy making. The effect of interest rate reductions have proved to be more effective compared with other countries internationally. Board members noted that the package would result in significant sales growth during 2009.