China property market a key global risk, Reserve Bank warns

Today's statement from the Reserve Bank provides some key reasons why we should be alert, though not necessarily alarmed, about the local and global economic picture.

While the RBA says the global outlook appears to be "broadly balanced", it's clear that low level alarm bells are ringing in central bank boardrooms around the world.

The big source of nerves is China's property market, which the latest quarterly statement describes as a "key risk".

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The RBA says Chinese property investors have been a source of uncertainty for some time, even though authorities have been trying to engineer a slower growth in property price - in other words, to prevent a dangerous bubble.

There's a chance that strategy might have worked given that the market appears to have cooled slightly.

However the RBA appears worried that some purchasing restrictions put in place have now been removed and that now "most cities and authorities have acted to supply some support to purchasers and developers".

The RBA is also nervous that if the Chinese property market slows down too rapidly, it could hurt Chinese commodity demand, economic activity or financial stability which would have implications for not only Australia but the world.

Even so, the RBA still believes China will achieve economic growth of 7.5 percent this year but thinks that should trend gradually lower as authorities trade off stellar expansion for financial stability.

Another key risk identified by the RBA as "a significant source" is a constant one - the still high level of the Australian dollar.

Despite recent falls as low as 85.66 US cents yesterday, the RBA says the dollar remains "above most estimates of fundamental value" and that a lower currency "would achieve more balanced growth in the economy" .

Last week's decision by Japan's central bank to ramp up its stimulus is now a fly in the RBA's ointment in terms of taming the dollar.

The RBA worries that funds from Japan will come looking to Australia for a high yield home and as a result "could hold the Australian dollar at a higher level than real economic fundamentals would imply".

Put simply - the RBA says the dollar might appear to be falling, but maybe not as much as it might appear.

Finally, the RBA says the timeline for the end of the investment phase of the mining boom is causing local angst.

It sees the speed and timing of any anticipated recovery in non-mining business investment as a major uncertainty.

The RBA says while "a substantial pickup" in the non-mining sector is some way away, it believe the fundamentals are in place for the transition from mining investment to begin.

And if the appetite for risk improve, the RBA is betting that growth in non-mining investment could be bigger than forecast.

Else, the RBA's latest statement is steady as she goes with growth steady, though still below trend, inflation within the 2 to 3 percent bank and the jobless rate expected to remain elevated above 6 percent.

As for the direction of interest rates the Reserve Bank is sticking to its no surprises policy and repeated that "the most prudent course" remains of period of stability.

For most economists, that means a rate rise mid to late 2015 - or until the US Federal Reserve decides it's time to push the rates button.

That is, unless any of the above risks nominated by the RBA, turn into bigger problems or even shocks.