SYDNEY (AFP) - Australia's central bank Monday said it saw global growth as strong despite the uncertainty created by the crisis in the US home loan market.
The Reserve Bank of Australia (RBA) said rising delinquency rates in the US sub-prime housing market had resulted in a marked increase in volatility in financial markets around the world.
"The extent to which these financial events might affect global growth remains uncertain," the bank said in a quarterly statement.
"At this stage, however, the evidence continues to point to strong growth in the global economy overall.
"While there has been a slowing in the United States, this has so far been largely confined to the housing sector, with the wider economy still growing at a reasonable pace."
Last week Australia's central bank was one of several around the world to pump more money into the banking system to try to calm lenders' concerns stemming from problems in the US subprime mortgage market.
The bank Monday said the biggest risk from the crisis was the possibility of an excessive withdrawal of the provision of credit, which could constrain growth in spending and output, particularly in the United States.
It said recent developments had made lenders more risk adverse and this had contributed to the pricing of risk on global credit markets being brought back to more reasonable levels.
"There has been some flow-on through credit markets, where spreads have widened, particularly for low-rated paper," it said.
"However, at this stage, the extent of the widening has only seen spreads rise back to more reasonable levels after a period when risk appears to have been under-priced."
The bank, which also raised its underlying inflation forecast to 3.0 percent for Australia for the rest of 2007, said strong conditions were also prevailing generally in other parts of the world.
It said growth in China and some east Asian economies was healthy and Japan, despite recent volatility, had demonstrated "a reasonable pace of expansion".
Recent data from Europe suggested growth had been maintained during the first half of the year, although conditions were not as strong as last year, it said.
The RBA said it would keep a close watch on domestic inflation risks as well as developments in international financial markets and their possible implications for the global economy.