RBA optimistic as rates stay on hold

THE Reserve Bank has sought to allay fears over fresh evidence of a slowdown in economic growth, maintaining Australia’s long-term outlook is bright.

As it held the cash rate steady for a 10th straight month, RBA governor Philip Lowe yesterday said business conditions continued to improve.

Sticking with the “glass half-full” mantra inherited from his predecessor, Dr Lowe also said the drag on overall capital investment from min- ers — who have completed a raft of major projects in recent years and are now investing far less — was nearing an end.

But he acknowledged economic growth was likely to have been weak in the three months to March as a result of the impact of Cyclone Debbie and patchy retail spending figures.

Those factors and a fall in export volumes outlined in yesterday’s quarterly balance of payments figures have some economists tipping GDP growth went backwards in the three months to March.

Official GDP figures for the March quarter are due today.

“Business investment has picked up in those parts of the country not directly affected by the decline in mining investment,” Dr Lowe said.

“Year-ended GDP growth is expected to have slowed in the March quarter, reflecting the quarter-to-quarter variation in the growth figures.

“Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent.”

The RBA has kept the cash rate at 1.5 per cent since August.

Economists said the cen- tral bank’s steadfast position on growth could yet be justified but it likely underplayed the weakness in first-half activity.

“We think there are reasons to believe the pace of economic activity may have stepped down in a more sustained fashion,” ANZ head of Australian economics David Plank said.

In that case, “core inflation will remain low, and the RBA’s policy settings may be challenged”, Mr Plank said.

Elsewhere, comments from the governor built the case for a potential rate cut later this year.