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Updated Saturday, April 5, 2008 0:00 am TWN, AP



	Reserve Bank of Australia governor Glenn Stevens addresses House of Representatives standing committee on economics in Sydney, Australia Friday. The central bank chief signaled Friday that he believes Australia’s economy is showing signs of cooling, but said he cannot rule out another hike in interest rates to try to control inflation.(AP) Enlarge Photo

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Australian economy showing signs of cooling

SYDNEY, Australia -- Australia’s economy is finally showing signs of cooling, but rising inflation remains a serious threat and another interest rate rise cannot be ruled out, the central bank chief said Friday.

Reserve Bank of Australia Governor Glenn Stevens said he expects inflation to remain “uncomfortably high” in the near term and would peak “at 4 percent or thereabouts” during the first quarter of this year.

The bank, which has raised interest rates a dozen times since mid-2002, believes demand is finally slowing, but more evidence is needed to confirm the moderation will be long-term and broadly based, Stevens said.

If demand fails to cool, rates may need to be raised from the current 12-year high of 7.25 percent.

Stevens said the current level of rates was “on the high side” and would eventually come down, but he could not say when.

“I can’t tell you at what point rates can start to come down. I can’t even promise that they might not rise again,” Stevens told a parliamentary committee hearing in Sydney. “I think for the moment this is the right number.”

A long economic boom, driven by demand from China and India for Australian coal, iron ore and other commodities, has also fueled inflation, which the government has identified as among the country’s most serious problems.

“Inflation is not out of control,” Stevens said, adding that it will take time for inflation to abate.

Adding to evidence of a slowdown, data released Friday show retail sales weakened the second month in a row in February. Sales fell 0.1 percent to a seasonally adjusted A$20.08 billion (US$18.35 billion; euro11.8 billion) from A$20.10 billion (US$18.4 billion; euro11.9 billion) in January, and rose from A$18.98 billion a year earlier, the Australian Bureau of Statistics reported.

“This is the first sign of a downturn in the real economy,” said Scott Haslem, chief economist at UBS.

The Australian dollar fell nearly half a U.S. cent after the retail sales data, to US$0.9114.

Stevens comments are consistent with many analysts’ view that the bank will hold interest rates steady until there is more evidence of a lowdown and a fall in inflation, then reassess its policy.

Commonwealth Bank of Australia Chief Economist Michael Blythe said Stevens’ statement indicated no “dramatic” change to the central bank’s view. Consumer price data due April 23 will be the deciding factor on another rate rise, Blythe said.

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