ustralia can handle the slowdown in world growth, the International Monetary Fund said on Tuesday, adding that the Reserve Bank's decision to ease monetary policy in the face of financial market turmoil was welcome.
"The sound macroeconomic framework should permit Australia to weather the global downturn and contain inflationary pressures,'' the IMF said in a regular national assessment.
The IMF forecasts Australia's pace of growth to slow to 2.7% in 2008 from 4.3% last year, when booming commodity prices had fired up growth but also fuelled inflation.
Australia's consumer price index is expected to rise 4.4% this year compared with 2.3% in 2007, the IMF said, which is what prompted the central bank to raise rates by a 100 basis points between August 2007 and March 2008.
The RBA ended a period of monetary policy tightening in early September when it cut cash rates by 25 basis points, after global market strains and tighter financing conditions reduced the threat of domestic price pressures.
The IMF said that it backed this action - the RBA's first rate cut in seven years - which it also emphasized had been accompanied by official "readiness to follow a cautious monetary policy aimed at achieving the 2-3% inflation target range over time.''
The IMF also said that following its recent depreciation, the Australian dollar was ``now broadly in line with medium-term fundamentals,'' while risks linked to a widening in the country's current account deficit should be offset by investment that will contribute to export capacity.
The IMF also said that it welcomed Australia's decision to curb public spending and urged that the government surplus be allowed to exceed budget forecasts "until it is clear that inflation will decline.''
"To the extent that the improvement in the budget balance is structural and associated with permanently higher commodity prices, there should be scope to reduce taxes or increase spending over the medium term,'' the IMF said.
Reuters
