Where the crisis might strike next

Watch the North Atlantic.

According to one expert, that’s where the lingering risks from the global economic crisis are likely to appear.

Guy Debelle, an Assistant Governor of the Reserve Bank, who specialises in financial markets, delivered this warning in a speech he gave in Sydney.

Addressing a Women in Finance lunch, Mr Debelle said:”We are now into the phase where weakness in the global macroeconomy is feeding back into the financial sector.

“In that regard, a significant risk, in my assessment, is that we are still to see the full impact of the weakness in the North Atlantic economies on the loans on the books of financial institutions.”

“…this was a big recession which, combined with large falls in both commercial and housing property prices, should result in large loan losses,” Mr Debelle said.

(A copy of his speech can be found on the Reserve Bank’s website, at www.rba.gov.au).

Mr Debelle stressed, though, that this warning should not be taken as his central message .

“The central case is that financial markets have improved considerably over the past year,” Mr Debelle said.

In a separate development, the Reserve Bank warned that more interest rate rises can be expected this year, but that they will probably not be on a monthly basis in future, as they were late last year.

This message was contained in the minutes of the Reserve Bank board meeting, held earlier this month.

The board, then, surprised many economists, by keeping interest rates on hold.

The minutes have just been released.

They noted that board members had been briefed on Australia’s economic prospects.

Then the printed  minutes  then offered a ray of hope to struggling home buyers.

They said board members:”…did not regard that outlook as requiring an increase at every meeting.”

The board, generally, meets on the first Tuesday of each month, except January, to review rates.

It’s main aim, at those meetings, is to keep Australia’s underlying inflation rate within a 2 to 3 per cent range, over the course of a business cycle.

The minutes described the case for keeping rates on hold earlier this month as “stronger” than that for another rise.

The minutes also said that  although Australia’s underlying inflation rate is still  3.25 per cent, it is expected fall to around 2.5 per cent this year.