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Category: Markets / Stockmarket / Economic Trends / Money and Monetary Policy

Reserve Bank sanguine about financial threats

Thursday, 18 Feb 2016 12:09:55 | Elysse Morgan

The "Tribute to Light" is viewed from the observatory at One World Trade Center on September 11, 2015 in New York City. -- AFP

'Just relax', is the implied message from Reserve Bank official, Malcolm Edey to Australian investors.

Despite seeing the value of their share portfolios melt in the last few months, Dr Edey sounded relatively upbeat as he reviewed global risks and recent market turmoil.

"It is relevant to note that market and media commentary often errs on the side of being unjustifiably gloomy," he told the Australian Shareholders Association in Sydney.

Dr Edey suggested that the big sell-off could be in-part an "overreaction".

He urged that the turbulence be put into perspective, pointing to evidence that markets have been through similar bouts of nervousness and recovered – using late-2015 as an example, adding that "relatively little" data had been released this year to warrant the increasing anxiety over global growth.

The crashing oil price, he pointed out, is more related to strong supply rather than weak demand, and the RBA's assistant governor (financial system) highlighted that lower energy prices should generally been seen as a positive despite the effects on producers and their shareholders.

"I think these points argue against putting an excessive focus on recent market movements," he said.

However, should things go really pear-shaped overseas, the Australian financial system, he added, is in relatively good shape.

"Direct exposures of Australian banking institutions to the risk factors I have been describing are quite limited," he observed.

Exposures to Europe have been scaled right back in the past few years, and while exposure to Asia has grown it only accounts for around 4 per cent of global consolidated assets.

Banks are well funded and risks at home are more or less under control, Dr Edey indicated.

"The main effects from the risks I've been describing are likely to be indirect, working through the impact of factors like commodity prices, trade flows, and confidence, on the broader economy," he reassured.

However, he told the conference that the RBA will continue to provide timely risk analysis.

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