RBA bullish on growth

capital investment from miners – 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 gross domestic product 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 on hold at 1.5 per cent since August.

Economists said the central bank’s steadfast position on growth could yet be justified but 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. He said slow growth in real wages was “restraining growth in household consumption”, while property prices in Melbourne and Sydney – an area the RBA has been wary of stimulating – are “starting to ease”.

A fall in the Australian dollar of more than US2¢ since late March has provided a welcome tailwind for the central bank, with the boost it provides to exporters serving as something of a quasi-rate cut.

With the hold decision heavily priced into markets, the Aussie shot up US0.3¢ to US74.96¢, regaining ground lost earlier in the day.