Growth to return without rate cut: RBA

Marty SilkAustralian Associated Press

The Reserve Bank is looking unlikely to cut interest rates this year after signalling it expects mining exports and growing consumer spending to keep the economy growing towards its three per cent target.

RBA governor Philip Lowe said holding the central bank’s benchmark interest rate at a record low of 1.5 per cent on Tuesday, after cutting rates twice last year, was the best way to support growth and boost sluggish inflation.

He expects gross domestic product to rebound in the December quarter, attributing the unexpected 0.5 per cent fall in the September quarter to “temporary factors”.

“The bank’s central scenario remains for economic growth to be around 3.0 per cent over the next couple of years,” Dr Lowe said in a statement.

“Growth will be boosted by further increases in resource exports and by the period of declining mining investment coming to an end. Consumption growth is expected to pick up from recent outcomes, but to remain moderate. Some further pick-up in non-mining business investment is also expected.”

Housing Industry Associaton chief economist Harley Dale said prospects of a rate cut in 2017 had been quashed.

He said Dr Lowe had signalled that economic conditions “would need to deteriorate markedly from where they currently sit if there were to be a further interest rate cut”.

Dr Lowe said both headline and core inflation, which the RBA has been closely watching recently, had been expected to be about one per cent in the December quarter.

Official figures released two weeks ago showed that headline inflation was 1.5 per cent in the year to December, while core inflation was 1.55 per cent in the same period.

Dr Low said while consumer price growth has been low recently, headline inflation was expected to return to the RBA’s two to three per cent target band in the current year.

“The bank’s inflation forecasts are largely unchanged. The continuing subdued growth in labour costs means that inflation is expected to remain low for some time,” Dr Lowe said.

“Headline inflation is expected to pick up over the course of 2017 to be above 2.0 per cent, with the rise in underlying inflation expected to be a bit more gradual.”


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