Reserve Bank highlights European concerns

Federal Treasurer Wayne Swan is concerned about the unfolding Greek debt crisis, but he believes Australia is shielded by the economic strength of the Asia-Pacific region.
The Reserve Bank's June 7 board meeting minutes released on Tuesday highlighted its concerns over Europe's debt problems, which economists believe wipes out the chance of an interest rate rise until August at the earliest.
"Downside risks to the international economy had become a little more prominent over the past month, especially in the case of sovereign debt problems in Europe," the minutes said.
And that meeting was two weeks ago.
Local financial markets were somewhat calmer on Tuesday after recent global jitters ahead of a key vote in the Greek parliament.
Greek Prime Minister George Papandreou will be seeking a vote of confidence in Athens on Tuesday (Wednesday AEST) to enable his wafer-thin majority to push through 28.4 billion euros ($A38.5 billion) of austerity cuts on June 28.
Greece's debt currently tops 350 billion euros ($A475 billion).
Eurozone finance ministers will meet on July 3 to finalise a second financial rescue package for Greece to avert a loan default.
The Greek problem is likely to be high on the agenda when European Union leaders hold a summit later this week.
"I certainly hope the European authorities deal with the challenges there, but here in this region growth remains strong and that certainly is a good thing for us," Mr Swan told reporters in Canberra on Tuesday.
Releasing its latest analysis on the euro area on Monday, International Monetary Fund acting managing director John Lipsky said it showed that the "spillovers from the ongoing difficulties" in peripheral European counties were relatively small.
"But it also shows that the crisis would be felt much more strongly around the world if it spread to the banks in the core of the euro area," Mr Lipsky said.
The Reserve Bank minutes reiterated that further interest rate increases would be "necessary at some point", although members judged it was "prudent" to leave policy unchanged pending international developments and further data on domestic demand and inflation.
"Members considered ... that the flow of data over the past month had not added any urgency to the need for an adjustment to policy," the minutes said.
"While there had been additional evidence of the coming strong pick-up in investment in the resources sector, activity remained quite subdued in some other important parts of the economy."
The official cash rate was last increased in November 2010 to 4.75 per cent.
RBC Capital Markets head of Australian strategy Su-Lin Ong said the likelihood of above-trend economic growth and higher inflation in the second half of the year argued for a 25 basis point rate hike in the coming months.
"(But) we doubt if the RBA will hike if US and global activity continues to disappoint and the European situation is still this uncertain or worsens," Ms Ong said.
She said an interest rate rise may be pushed back to the December quarter as the global backdrop may still be "rather murky" by early August when the Reserve Bank holds its monthly board meeting.