Australia’s central bank yesterday cut its growth forecasts as it reinforced a “period of stability” in interest rates and highlighted the challenges the economy faces as it moves away from mining-led expansion.
The Reserve Bank of Australia lowered its GDP forecasts for this year and next year by 25 percentage points and said the “key uncertainties” facing the economy included when and how large the fall-off in resources investment would be.
“The key uncertainties for the domestic economy continue to be centered on the timing and extent of the decline in mining investment and how this is balanced by the expansion of resource exports and the recovery in non-mining activity,” the bank said.
“Mining investment could decline more sharply than anticipated. On the other hand, it is possible that consumption and non-mining business investment could, in time, be stronger than expected,” it said.
In its quarterly Statement on Monetary Policy, the central bank projected economic growth would be about 2.5 percent in the year to December, down from its May forecast of 2.75 percent.
It estimated GDP to be about 2 to 3 percent in the year to June next year, from the prior forecast of 2.25 to 3.25 percent.
Near-term inflation expectations were revised downward after the government repealed carbon tax legislation. Consumer prices were tipped to rise by 2 percent instead of by 2.75 percent in the year to December next year.
The Australian dollar slipped against the US dollar by nearly US$0.0025 to about US$0.9245 after the statement was released.
The Reserve Bank of Australia kept the cash rate on hold at a record low of 2.5 percent on Tuesday. Interest rates have remained at 2.5 percent since the central bank last eased monetary policy in August last year to boost growth in non-mining activity, as the economy exits from an unprecedented resources investment boom.
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