Aus­tralia cbank pushes back growth up­swing

The Pak Banker - - COMPANIES/BOSS -

Aus­tralia's cen­tral bank in­di­cated the job­less rate has peaked as signs mount the econ­omy is im­prov­ing, even as it pushed back fore­casts of a growth up­swing by a year.

"Data on the do­mes­tic econ­omy over the past few months have gen­er­ally been pos­i­tive," the Re­serve Bank of Aus­tralia said Fri­day in Syd­ney. "The un­em­ploy­ment rate is now forecast to re­main lit­tle changed over the next 18 months or so from a level that is a bit lower than had ear­lier been forecast, be­fore de­clin­ing over 2017 as de­mand growth picks up."

Pol­icy mak­ers' con­fi­dence sug­gests a three-month pause in in­ter­est rates at a record-low 2 per­cent could be ex­tended. Pres­sure to fur­ther stim­u­late the econ­omy has been re­lieved by a bet­ter la­bor mar­ket and a weaker cur­rency, al­low­ing Gover­nor Glenn Stevens in his pol­icy de­ci­sion Tues­day to omit a ref­er­ence to the lo­cal dol­lar be­ing too high for the first time in 18 months.

"It sounds more op­ti­mistic than last time," said Michael Turner, a debt strate­gist at Royal Bank of Canada in Syd­ney. "Sur­vey data com­bined with the weak­ness in the ex­change rate has been enough for the RBA to get a lit­tle more op­ti­mistic."

The cen­tral bank said to­day that with the Fed­eral Re­serve ex­pected to be­gin tight­en­ing pol­icy be­fore the end of the year, there is "a rea­son­able chance that the Aus­tralian dol­lar will de­pre­ci­ate fur­ther." It raised forecast core in­fla­tion to 2.5 per­cent for the next two years -- the mid­point of its tar­get -- to ac­count for higher im­port prices as the cur­rency de­pre­ci­ates.

The Aus­tralian dol­lar rose and was trad­ing at 73.73 U.S. cents at 12:12 p.m. in Syd­ney from 73.49 cents be­fore the state­ment. In to­day's State­ment on Mon­e­tary Pol­icy, the RBA forecast av­er­age eco­nomic growth of be­tween 2 per­cent and 3 per­cent in 2016, down from the 2.5 per­cent to 3.5 per­cent seen in May. It said rate cuts in Fe­bru­ary and May are still work­ing their way through the econ­omy.

"The board has judged that an ac­com­moda­tive stance on mon­e­tary pol­icy re­mains ap­pro­pri­ate," it said. "The board will con­tinue to as­sess the out­look and ad­just pol­icy as needed to foster sus­tain­able growth in de­mand and in­fla­tion out­comes."

The cen­tral bank also cut its forecast pop­u­la­tion growth to ac­count for lower immigration as Aus­tralia's la­bor mar­ket re­mains weaker than coun­tries like New Zealand that are tra­di­tion­ally a source of skilled, prime-age mi­grants. The work­ing age pop­u­la­tion is as­sumed to grow at an an­nual 1.5 per­cent over the next 2 1/2 years, about a quar­ter per­cent­age point lower each year than forecast three months ear­lier.

The RBA also re­duced its forecast for public de­mand as gov­ern­ments across Aus­tralia try to re­pair their bud­gets. To­day's state­ment said the risks to the global growth out­look re­main broadly bal- an­ced, though they are "some­what tilted to the down­side" in China.

"There con­tin­ues to be un­cer­tainty sur­round­ing the tra­jec­tory for growth and macroe­co­nomic pol­icy in China, and the im­pli­ca­tions for com­mod­ity de­mand," it said. "The re­cent volatil­ity in the Chi­nese eq­uity mar­ket and the gov­ern­ment's pol­icy re­sponse have both in­creased the gen­eral level of un­cer­tainty re­gard­ing the eco­nomic out­look."

Iron ore, Aus­tralia's big­gest ex­port, dropped to a six-year low be­low $45 a met­ric ton in early July as Rio Tinto Group and Vale SA raised out­put into an over­sup­plied mar­ket, be­fore ral­ly­ing back into a bull mar­ket. Chi­nese steel pro­duc­tion con­tracted in the first half as mills faced a prop­erty-led slow­down af­ter decades of growth.

The RBA to­day re­vised down its forecast for the terms of trade, or ex­port prices rel­a­tive to im­port prices, by 4 per­cent from the May pre­dic­tion to ac­count for the more sub­dued out­look for Chi­nese steel de­mand. It also said a pickup in in­vest­ment out­side the min­ing in­dus­try in Aus­tralia is un­likely in the next year or two.

Still, the cen­tral bank said the fur­ther de­pre­ci­a­tion of the cur­rency will help the econ­omy ad­just to the lower terms of trade. It noted that busi­ness con­di­tions are above av­er­age, firms are hir­ing more la­bor and dwelling in­vest­ment is likely to re­main strong in re­sponse to low rates and ris­ing house prices.

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