Flexibility In The Australian Financial System

Apparently the Australian financial system was able to remain stable after showing flexibility against the worst economic crisis the world had seen since World War II, since banks continue crediting after managing to avoid the negative shocked produced by the financial crisis. Yet the central bank lowering rates to the lowest in 49 years at 3.00% also gave a helping hand to this vital sector.

Today the Australian central bank released the semi-annual report that reviews the country's financial system, which proved to remains resilient against the worldwide financial crisis despite the decline seen in bank and financial companies' profits that regarding this still show better performance than their counterparts in other parts of the globe.

Commercial banks met support by the increased demand for private loans especially since interest rates were lowered to 3.00% the lowest in 49 years. The government stimulus plans also helped facilitate crediting by banks and financial institutions which increased their confidence after these interventions, being able to support also the business sector and help expanding investments, thereby improving the outlook of the Australian economy.

The central bank said in its report that the largest four banks in Australia have been able to show great flexibility in dealing with the crisis, at times when many banks around the world went bankrupt. The central bank attributes this to the economy's capability to record growth during the first half of the year by 1.0%, a performance failed by many other economies around the world like the United States, Japan, Europe or Britain.

However, the Australian financial system might face some obstacles during the upcoming period, especially that the next step the central bank might take could be raising rates, which may reduce the facilities that currently exist within the banking system, and may reduce investors' enthusiasm for obtaining more credits.

The Australian economy has shown many positive signs that exceeded any expectations during the last period, and this determined monetary policy makers to consider raising rates, as they noted during the minutes of their last meeting the need for a balance between increasing inflation levels over the medium term and giving more support for the economy.

The central bank governor Glenn Stevens noted during the minutes that tightening their monetary policy too early may harm confidence and demand, as there are still some suspicions about the expectations regarding the global economy as well as the local one. Mr. Stevens expects a slower momentum on the demand in the upcoming period as well as capital expenditures given the financial constraints.

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