Australia’s central bank cuts growth outlook, holds rates
AUSTRALIA’S central bank cut its economic growth forecasts and kept interest rates at a record low on Tuesday, as house prices in major cities slumped and consumer spending weakened.
“Some downside risks have increased,” governor Philip Lowe said after the Reserve Bank of Australia’s first board meeting of the year.
The central bank predicted the economy would expand 3.0 per cent this year, much slower than its previous forecast of 3.5 per cent. Borrowing costs were held at 1.50 per cent, where they have been since August 2016.
“The main domestic uncertainty remains around the outlook for household spending and the effect of falling housing prices in some cities,” said Lowe.
House prices, particularly in Sydney and Melbourne, continued to fall in January and the pace had sped up over the past three months, leading property data provider CoreLogic said last week.
Other economic indicators have also taken a negative turn, with new retail sales figures on Tuesday falling 0.4 per cent in December, below market expectations.
Lowe said inflation – at 1.8 per cent in December and below the bank’s target range of 2.0-3.0 per cent – would pick up gradually but would “take a little longer than earlier expected”.
Analysts said the gloomier outlook, which comes as the US Federal Reserve, Bank of Canada and European Central Bank stepped back from their hawkish monetary policy stances, made rate hikes less likely.
The Reserve Bank has said a rate increase rather than a cut was more likely in the coming few months or year on the back of a strong labour market, lifting business investment and higher levels of government infrastructure spending.
However, Capital Economics’ Australia and New Zealand economist Ben Udy said in a note: “Although the RBA took a more dovish tone when it left rates on hold today we think it will need to consider cutting rates before long as the economic outlook deteriorates.”
He added that economic growth could fall to as low as 2.0 per cent this year, forcing the central bank to slash rates to stimulate the economy. AFP