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Monday 12th of May 2008

March 27, 2008

Australian Banks Weathering Storm

Permalink: Australian Banks Weathering Storm by Peter Charalambous

Australian Banks Weathering Storm”/> </p> <p>Glenn Stevens, Governor of the central bank describes Australian banks as “weathering the storm” of the global credit crisis, and a result have remained profitable due to their capital reserves.</p> <p>The Governor said in a speech today that: “there is very little direct exposure to the U.S. sub-prime problems” and this was as a result of “years of robust economic growth, sound regulatory foundations and prudent risk management.”</p> <p>This apparent strength of the banking system and other financial institutions could give the Reserve Bank of Australia leeway to increase interest rates further if the inflationary pressure continues, as it is currently rising at its faster rate since 1991.</p> <p>Since August the bank has raised interest rates four times, and it is at the highest rate in four years, although economists believe that the Reserve Bank has generally been optimistic about the Australian economy and so the general consensus is that only a small rise may been seen and the Bank will likely to delay the decision as far as is reasonably practicable given the current unpredictability of the global economic climate.</p> <p>This view is shared by Michael Blythe, chief economist at Commonwealth Bank of Australia who said that: “the strength of the domestic economy and the near-term inflationary trajectory still favor a lift in the official cash rate target to 7.5 percent by mid year.”</p> <p>Despite these projections the local financial community has been wounded by the global turmoil, as the country’s two largest banks have seen A$34 billion wiped off their value this year, whilst the S&P/ASX 200 Finance Index has experienced a 27 percent in the last six months. </p> <p>Prime Minister Kevin Rudd in a recent speech expanded on Stevens’ comments and called for a more stringent approach as he said that: “the current crisis has highlighted the importance of disclosure and transparency” in reference to the banking sector in order for financial institutions to remain resilient to outside pressures.</p> </div> </div> <!-- <rdf:RDF xmlns:rdf= -->

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