RBA tips short-term dip

But no change to outlook for next 18 months

THE Reserve Bank has confirmed its downgraded nearterm economic growth forecasts, but has kept its longer-term expectations unchanged.

The RBA said yesterday it now expects annual GDP growth to June of 1.75 per cent, compared to the 2.25 per cent it flagged six months ago, with the December target downgraded from 3.0 to 2.75 per cent.

The central bank, which has also trimmed its mean inflation targets for the same periods, still expects Australia’s economic growth to stay at 2.75 per cent over the next 18 months.

“Year-ended GDP growth is expected to be around 2.75 per cent over 2019 and 2020, supported by accommodative monetary policy and an increase in household disposable income growth,” the RBA said.

Keeping the cash rate at its long-term record low 1.5 per cent this week, the RBA had flagged the importance of a strong labour market in supporting both consumption and economic growth. Yesterday, it reiterated the belief that the rate of unemployment is likely to remain unchanged, a scenario that lends weight to the opinion of economists expecting as many as two rate cuts this year.

The latest RBA forecasts were with the assumption that the cash rate will be cut twice to 1.0 per cent.

“The decline in job advertisements points to a much weaker outcome for employment in the near term than the leading indicators from business surveys,” the RBA noted.

“The unemployment rate is expected to remain around 5 per cent for some time, before edging lower ... (which) suggests that there will continue to be some spare capacity in the labour market over the next few years, although there is ongoing uncertainty around its extent.”

The Australian dollar ticked up on the release of the quarterly Statement of Monetary Policy, from 69.91 US cents to 70.12 at 11.45 AEST.