IMF says Australia may need another stimulus package: Economy Roundup

The International Monetary Fund says the Australian economy may need another stimulus package to help get through the downturn and has warned the RBA about raising rates too early in the economy’s recovery.

In its regular examination of the state of the Australian economy, the IMF said the fall in Australia’s exchange rate has helped provide the economy with a buffer from the collapse in the global economy.

But the IMF has warned that governments may need to do more to stimulate the economy as the downturn continues. It has also cautioned the RBA against raising rates too quickly.

“The return of the cash rate to neutral can wait until there are clear signs that a sustainable recovery is underway,” the IMF said.

Federal Treasurer Wayne Swan has welcomed the report.

“In effect, there’s big tick for the economic stimulus package, particularly in the IMF report.”

The Australian sharemarket has recovered from a difficult few days to open higher this morning. The benchmark ASX/S&P 200 index was up 26 points or 0.7% to 3833 points at 12.15pm AEST.

The Australian dollar has moved lower to US79.7c.

Westpac has enjoyed a strong morning, with its shares up 1.4% to $19.47, while News Corporation and BHP Billiton are both up around 1%.

Shares in West Australian Newspapers fell 3.2% to $4.30 after the company announced it would sack 9% of its workforce to save around $9 million a year. However, the company will be forced to take a one-off charge of $13.9 million to pay staff entitlements as a result of the job cuts.

Overseas, the US Federal Reserve held official interest rates steady at 0-0.25% overnight, but has signaled that it is no longer concerned about the prospect of deflation.

That has led some to predict the Fed will start increasing rates sooner rather than later, although many economists are still convinced the Fed will leave rates on hold for up to two years as it seeks to kick-start the economy.