'Far too early' to stop stimulus - Swan

Australian Treasurer Wayne Swan says withdrawing stimulus from the nation's economy before the global recession unfolds would be both premature and "very risky".

It was "far too early" to be "moving away from the policy settings that have served us well so far", Swan said yesterday.

Australia's Government has distributed A$12 billion to low- and middle-income households this year and will spend A$22 billion on roads, railways, ports and schools to cushion the economy against the worst global recession since the Great Depression.

Domestic demand is also being spurred by the lowest central-bank benchmark rate in half a century.

"I'm also convinced that suggestions of an early withdrawal from stimulus are both premature and very risky," Swan said. "The world's major advanced economies are still in the midst of a savage global recession."

Recent reports showing a surge in consumer and business confidence have stoked speculation among economists, including Westpac's Bill Evans, that central bank Governor Glenn Stevens has finished cutting borrowing costs.

Stevens and his board slashed the overnight cash rate target by 4.25 percentage points between September and April to 3 per cent. He left the rate unchanged on July 7 for a third month.

Investors have increased bets Australia's benchmark interest rate will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.

Traders forecast the key rate would be 63 basis points higher in a year, the index showed late on July 17 in Sydney. At the start of June, they forecast 3 basis points of reductions.

"What Australian businesses - both big and small - tell me is that stimulus means they still have customers coming through their doors," Swan said yesterday.

"To withdraw or dilute this vital support for Australian businesses and jobs now would be utterly irresponsible."

- BLOOMBERG