RBA Governor sees no sign of recession, sharemarket surges more than 3%: Economy roundup

RBA Governor Glenn Stevens says there are no signs that the Australian economy is heading towards recession, but has warned that it will take at least six months before inflation starts to ease.

RBA Governor Glenn Stevens says there are no signs that the Australian economy is heading towards recession, but has warned that it will take at least six months before inflation starts to ease.

Stevens, who was making his twice-yearly appearance before the House of Representatives Economics Committee, said that while recession can’t be completely ruled out, the Australian economy was more likely to enter a “slow-growth period”.

That moderate growth should see inflation fall back within its inflation target band over the next few years.

“Admittedly, we are probably six months away from seeing clear evidence that inflation has begun to fall, and even then, it has to fall quite some distance before it is back to rates consistent with achieving 2% or 3% on average,” Stevens told the committee.

Despite this, rates are likely to remain heading downwards in the short term. “I think in the near-term the question will be; do we hold here or do we go down a bit more? Unless something quite surprising happens, it seems to be unlikely that we’ll be reversing course up again in the near term,” Stevens said.

His comments that a recession is unlikely could provide even more of a spur for local investors, who have pushed the sharemarket dramatically higher this morning.

The benchmark S&P/ASX200 index was up 157.8 points or 3.2% to 5034.9 points at 11:30am AEST, as investors cheered news that the US government has bailed out the country’s giant mortgage lenders, Freddie Mac and Fannie Mae.

The big banks have been the main beneficiaries of the rally, with Commonwealth Bank, NAB and Westpac all up more than 5% this morning (ANZ is in a trading halt pending a capital raising).

There has also been widespread buying in the resource sector, with Fortescue Metals (up 8.6%), Santos (up 7.7%), Arrow Energy (8.5%) and Queensland Gas (26.8%).

In the biggest corporate news of the day, the board of Australian’s fifth biggest bank St George has agreed to recommend a takeover bid from Westpac, which has also agreed to increase the cash component of its offer to St George shareholders if the deal is successful.

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