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By Sophia Rodrigues
SYDNEY (MNI) - The Reserve Bank of Australia left its growth forecasts for
the economy largely unchanged amidst an improvement in the global growth outlook
and lowered its inflation forecasts, but its overall commentary suggests it will
likely leave the cash rate on hold for longer.
There were no real surprises in the one-page statement and the decision to
leave the cash rate on hold for the 14th month in a row was expected by both
economists and the market.
The outlook for policy is also unchanged, with the RBA repeating the
commentary that "the low level of interest rates is continuing to support the
Australian economy" and "taking account of the available information, the board
judged that holding the stance of monetary policy unchanged at this meeting
would be consistent with sustainable growth in the economy and achieving the
inflation target over time."
A downgrade in the RBA's inflation forecasts was widely expected after the
Australian Bureau of Statistics issued updated weights on the basket of items
used to compute the consumer price index. The changes are expected to lower
inflation by up to 0.35 percentage point in the next year.
The RBA didn't specify what the new inflation forecasts are but its
comments suggest underlying inflation is likely to remain below its 2%-to-3%
target band at least until December 2018, and perhaps longer. The forecasts, to
be published on Friday in the RBA's quarterly Statement on Monetary Policy, will
show numbers rounded to quarter percentage points, rather than in ranges,
exposing it to greater risk of revealing a figure below the target band.
The RBA said its growth forecasts are largely unchanged, with the central
forecast for GDP to average around 3% over the next few years. The commentary on
the outlook showed more optimism on non-mining business investment and the
support to growth from increased public infrastructure investment.
The main source of uncertainty is the outlook for household consumption,
the RBA said, adding, that household incomes are growing slowly and debt levels
The RBA upgraded its view on the global economy, saying "further
above-trend" growth is expected in a number of advanced economy, even though
There was no change in the outlook for Australia's terms of trade, which is
expected to decline in the period ahead, though finer details will only be known
in the full policy statement on Friday.
Despite the recent fall in the exchange rate, the RBA leave its comments on
the Australian dollar unchanged, probably to keep a lid on any appreciation. "An
appreciating exchange rate would be expected to result in a slower pick-up in
economic activity and inflation than currently forecast," the RBA repeated.
There was no change in the outlook for the labor market, with the RBA
repeating employment continues to grow strongly, with increase in all states and
a rise in labor force participation. It maintained that the jobless rate is
expected to decline gradually from its current 5.5% level.
The commentary on the housing market signaled a slight easing in concerns,
with the RBA noting that credit standards have been tightened in a way that has
reduced the risk profile of borrowers.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: email@example.com
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