KEY POINTS:
Federal Treasurer Wayne Swan says Australia is well placed to absorb a slowing in the world economy and the financial sector has coped well with recent volatility in international markets.
"The good news is that Australia is well placed to absorb a slowing in the world economy which may be caused by a more protracted US slowdown," Swan said in Brisbane after a meeting with the Reserve Bank of Australia, Treasury and the Australian Prudential Regulation Authority.
"The truth is that the fundamentals in the Australian economy are strong.
"The regulators advised me that the financial sector has coped well with recent international market volatility.
"I think it's very clear that Australia is not immune from the fallout emanating from the US sub-prime crisis, and of course, I think that has been demonstrated starkly in recent days."
He said the US sub-prime crisis had been pushing up the cost of borrowing on international capital markets, and mortgage rates had increased.
"Australian families have had something like six interest rate rises in the past three years as a result of rising inflation and the complacency of the previous government when it came to addressing key capacity constraints in the economy," Swan said.
"So Australia does face a serious inflation challenge, as well as the fallout from the US sub-prime crisis."
Swan said it was critical for all sections of the community to exercise some restraint.
"I think in this environment, it is critical that all sections of the community do exercise some restraint," he said. "The entire community loses from high inflation and higher living costs, and of course, higher interest rates put even more financial pressure on Australian families.
"That is why the Rudd Government has been dealing with the inflation challenge from Day One. That is why we strengthened the independence of the Reserve Bank.
The Government would exercise "considerable financial restraint" in the next Budget.
- AAP
