Growth in the world economy picked up in the early months of 2012, having slowed in the second half of 2011 though more recent indicators continue to suggest weakening in Europe and a slower pace of growth in China, noted the Reserve Bank of Australia (RBA) in its latest media release.
The bank stated further that conditions in other parts of Asia have recovered from the effects of last year's natural disasters, but the ongoing trend is unclear and could be dampened by the effects of slower growth outside the region. The United States continues to grow at a modest pace. Commodity prices have declined, which is helping to reduce inflation and providing scope for some countries to ease macroeconomic policies.
Financial markets have initially responded positively to signs of further progress towards longer-term sustainability in European financial affairs, but Europe will remain a potential source of adverse shocks for some time. While capital markets remain open to corporations and well-rated banks, low appetite for risk has seen long-term interest rates faced by highly rated sovereigns, including Australia, decline to exceptionally low levels.
The RBA kept decided to leave the cash rate unchanged at 3.50% at its meeting today. As a result of the sequence of earlier decisions, there has been a material easing in monetary policy over the past six months, stated the bank.
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