The impact of higher oil prices would be less damaging to Australia than other industrialised countries, the Reserve Bank of Australia (RBA) said on Thursday, although it expected oil prices to remain high.
The central bank also cautioned inflationary implications would be harsher if oil prices continued to rally.
"Since Australia is a substantial net energy exporter, the overall effect of higher energy prices would be to boost Australia's terms of trade, representing a net transfer of income to Australia from abroad," the central bank said in an article in its monthly Bulletin publication released on Thursday.
The Australian dollar rose and debt futures fell after the release of the report, as the market remained comfortable pushing expectations for any further rate rises out into the first half of 2005.
"The RBA's thoughts on oil prices and impact upon the economy remain consistent with its tightening bias," said Su-Lin Ong, senior economist at RBC Capital Markets.
Benchmark US light crude futures hit a record $55.33 a barrel on Monday and were trading on Thursday around $54.37, up more than 65 percent since the start of the year.
The price rise reflected a combination of supply and demand factors, the central bank said.
"Although some of these may be transitory and scope exists for some degree of substitution to other energy sources, the long-run growth in demand - especially from China - and relatively modest capacity increases suggest that a good part of the increase in prices could persist," the central bank said.
US Federal Reserve Chairman Alan Greenspan has repeatedly downplayed the impact of higher energy costs on the US economy and said in September he expected high prices to be "transitory".
Based on production as a share of consumption, the central bank estimated Australia's oil self-sufficiency at 78 percent compared with 64 percent for China, 44 percent for the United States and one percent for Japan.
Australia was also a substantial and growing net exporter of natural gas, the price of which was partly linked to oil, and also exported coal, it said.
Even if short-term supply uncertainties were to dissipate, it seemed unlikely oil prices would return to Opec's earlier $22-$28 a barrel target band in the foreseeable future, the bank said.
Opec's basket of seven crudes was valued at $44.98 a barrel on Tuesday, the latest estimate.
The Aussie dollar traded at 73.70 US cents by 0630 GMT compared with 73.55 US cents just before the report was released.
Australia's 90-day bank bill futures initially ticked down after the report, but closed steady to imply a yield 13 basis points over the cash rate of 5.25 percent, reflecting a market view any further rate rise may be pushed out until at least February 2005.
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