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RBA Governor Warns Trade Tensions Could Stall Momentum in Global Growth

11 Apr 2018 5:05 am
   By James Glynn 

SYDNEY--Reserve Bank of Australia Gov. Philip Lowe has warned that rising trade tensions between the U.S. and China could stall the global growth upswing, a development that would also hit Australia's fragile recovery.

Speaking Wednesday in Perth, Gov. Lowe said Australia would also feel pain if China fumbled the management of stresses in its financial system.

"A serious escalation of trade tensions would put the health of the global economy at risk and damage the Australian economy," Gov. Lowe said. "We also have a lot riding on the Chinese authorities successfully managing the build-up of risk in their financial system," he added.

Last week, Gov. Lowe pointed the finger of blame directly at Washington for the recent escalation in trade tensions, adding that recent volatility in equity markets stemmed in part over concerns about the direction of U.S. trade policy.

Australia could be hit hard if trade tensions between China and the U.S. ramp up. Any resulting slowdown in global growth could lead to weaker demand for Australian commodity exports such as iron ore and coal.

Meanwhile, a high level of household debt remains a source of vulnerability for Australia's economy, though risks in this area are no longer building, following a recent tightening of bank lending standards, he said.

The risks in the economy, and the prospect of only a slow return to higher inflation, and stronger growth, mean the RBA is under no pressure to raise interest rates near-term, he said.

The next move in the cash rate is more likely to be up, not down, reflecting the improvement in the economy, Mr. Lowe said.

The last increase in the cash rate was more than seven years ago, so an increase will come as a shock to some people, he added.

"But it is worth remembering that the most likely scenario in which interest rates are increasing is one in which the economy is strengthening and income growth is also picking up," he added.

Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

April 11, 2018 01:05 ET (05:05 GMT)

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