The Reserve Bank of Australia claims a decrease in lending to businesses and households has helped contain the prevailing economy.

The RBA, challenged by the threat of surging inflation, reiterated its monetary policy stance of increasing rates despite the strong dollar if inflation rises to 4% from the current level of 3.25%. However a decline in excess cash within the economy has abetted the central bank in its efforts.

Deputy RBA governor Ric Battellino states he believes Australians are being more cautious, leading to the decrease in household credit growth. As well, compared to last year, Australian businesses have decreased their credit by 4%, with corporations also becoming wary over debt.

The RBA’s second in command also reiterated conventional wisdom with his warning of a rate increase if the economy was to surge again, in efforts to keep inflation within the short to medium range target of 2% to 3%.
Last week the RBA decided to leave the cash rate unchanged, as the central bank believes the decline in lending is sufficient to cool the economy and not permit an increase in consumer prices.

The central bank is not expected to change the cash rate as a result of debt, as the central bank is content with the current level of household borrowing, which is in line with income growth.

Source: http://www.theaustralian.com.au/