RBA minutes highlight challenges: Swan

THE latest Reserve Bank board minutes highlight the challenges facing the global economy, Treasurer Wayne Swan has told parliament. Prospects for most of the developed world were still uncertain and the possibility of another downturn in some countries could not be ruled out, Mr Swan said, quoting from the minutes of the October board meeting.

It was at that meeting the central bank raised its cash rate for the first time in 19 months.

"We must be very cautious as we move forward because there is still an uncertain international environment," Mr Swan said.

The RBA had recognised also that the government's fiscal stimulus had already peaked and was beginning "to taper away".

The Australian people recognised this and it was very important to a sustainable recovery in the face of what was still a challenging environment.

But Mr Swan said confidence remained strong for both business and consumers, both at their highest levels since 2007.

Consumer sentiment - which is almost 50 per cent higher than pre-stimulus levels of October last year - was around double the improvements seen in the UK and the US.

"This reflects the fact that stimulus has kept customers going through the (shop) door, kept more Australians in work, and that is what has provided this vital boost to confidence," Mr Swan said.

The fact that growth domestic product grew in the March quarter, meaning the economy had avoided a technical recession, also gave a boost to both business and consumer confidence.

"What that confirmed was that Australia was defying global economic gravity, and that has been very, very important.

"That of course has given further confidence to the Australian people."

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