Investing.com - The Reserve Bank of Australia is assessing global and local data to determine where recent global market volatility and damp commodity prices are taking the economy, Governor Glenn Stevens said Friday.
"We will be examining new information over the months ahead as we try to discern the answers to these and other questions," Stevens said in a statement before the House of Representatives Standing Committee on Economics. He later added that the cash rate is unlikely to go higher anytime soon and then suggested the question is whether it would go lower than the current record low 2%.
"With inflation unlikely to cause a problem by being too high over the next year or two the statement after the recent meeting indicted that the board retains the flexibility to ease further should that be helpful," Stevens said.
It will take time to see if recent financial turbulence will have a materially negative effect on aggregate demand at home and overseas, Stevens said.
"The more recent anxiety is probably best described as greater uncertainty over the intentions of Chinese policymakers and over whether they will be able to carry off the economic transition China needs. This anxiety has been reflected in capital flows," he said.
Another question is what the recent unexpected strength in the labor market means for the outlook," Stevens said. "If it turns out that the strength is just temporary then the outlook is still for moderate growth - but no near-term acceleration. If, on the other hand, recent trends were to continue, the income gains coming from higher employment may start to feed into stronger demand growth - which would probably lead in due course to higher levels of investment," he said.
"Alternatively, if demand growth were to be in areas that require relatively little capital to support the labor employed then the apparent
weakness in capital spending outside mining could be of less concern," Stevens said.