RBA reduces GDP, inflation forecasts for 2015

Sydney

AUSTRALIA's central bank lowered its 2015 growth and inflation forecasts and predicted unemployment will rise, underscoring this week's decision to cut interest rates. "Growth overall is now forecast to remain at a below-trend pace somewhat longer than had earlier been expected," the Reserve Bank of Australia (RBA) said on Friday in its quarterly monetary policy statement in Sydney. "The economy is expected to be operating with a degree of spare capacity for some time yet, and domestic cost pressures are likely to remain subdued."

The RBA reduced its forecast average expansion for this year to between 1.75 per cent and 2.75 per cent from between 2 per cent and 3 per cent estimated in November. It lowered projected headline consumer-price growth to 1.25 per cent in the year through June from between 1.5 per cent and 2.5 per cent seen three months earlier.

Governor Glenn Stevens's decision to reduce rates three days ago follows a collapse in the price of iron ore, which generates A$1 in every A$5 of export income, and a rush to ease among global policy makers that threatened to drive Australia's currency higher. The economy is on track to record an expansion below the economy's potential for six of the past seven years, the longest stretch since the nation's last recession in 1991.

"The statement is just a reiteration of their view that the growth environment has deteriorated a little bit since November," said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd. "It's all consistent with another rate cut on the way."

Traders are pricing in at least one more quarter-point rate cut by the RBA's board in the next 12 months to a new record low of 2 per cent, according to swaps data compiled by Credit Suisse Group AG. Bloomberg