Package cushions blow- RBA official

A leading Reserve Bank of Australia (RBA) official says the national economy should be cushioned from the global economic crisis even though domestic growth is still forecast to fall in 2009.

RBA assistant governor of economic Malcolm Edey said the central bank's decision to cut the official cash rate by 200 basis points since September, the federal government's $10.4 billion fiscal stimulus package and a lower Australian dollar would help soften the impact of the crisis.

The Australian dollar has fallen around 35 per cent since mid-July.

"All of these factors will help to cushion the effects of the much more difficult global environment in which we now find ourselves," Mr Edey told delegates to the Australia and Japan Economic Outlook Conference 2008 in Sydney.

Mr Edey said policymakers around the world had responded to the current difficulties in their economies in many ways.

"Central banks have been adding liquidity to their financial systems, and they have been cutting official interest rates," he said.

"Some governments, including Australia, have announced substantial fiscal stimulus packages."

Also, governments have injected capital, raised protection for retail deposits and guaranteed various types of wholesale lending, Mr Edey said.

"These steps should help to stabilise conditions over time, but sentiment is still fragile," he said.

Even so the RBA forecast in its quarterly statement on monetary policy released last week that there would be a significant further slowing in the Australian economy next year.

Mr Edey reiterated the RBA's forecast for annual growth in non-farm gross domestic product (GDP) to slump to one per cent by mid-2009 and for inflation to fall beyond that.

"But it has to be emphasised that any forecasts in this environment are subject to a great deal of uncertainty, not least because the situation in world financial markets is still changing rapidly," he said.

Most of the recent economic data indicates a slowdown in growth but most was calculated before the start of the latest financial meltdown after the collapse of US investment bank Lehman Brothers on September 15, Mr Edey said.

"So they are of limited value in assessing the impact of the latest round of financial turmoil, which dates from mid-September.