Australia's central bank optimistic on economic outlook

[SYDNEY] Australia has a good chance of sustaining solid economic growth which would push down unemployment and lift both wages and inflation, a top central bank official said on Tuesday.

Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent said higher prices for the country's commodity exports were supporting the terms of trade, while the worst of a slump in mining investment was over.

Indeed, Mr Kent estimated that more than three-quarters of the anticipated decline in mining investment has not passed.

"The abatement of those two substantial headwinds suggests that there is a reasonable prospect of sustaining growth in economic activity, which would support a further gradual decline in the unemployment rate," Mr Kent said in a speech on the bank's record of forecasting.

"There is also a good prospect that the growth in wages and the rate of inflation will gradually lift over the period ahead." The Australian economy grew 3.3 per cent in the year to June, beating the RBA's own forecasts.

Inflation, however, has been surprisingly weak this year, leading the central bank to cut interest rates twice to a record low of 1.5 per cent. Mr Kent did not address the outlook for policy.

Mr Kent noted the fall in the local dollar since 2013 had provided vital support to the services sector, from tourism to education and business services.

Yet the currency did not fall as much as the RBA expected, largely because of aggressive easing policies by many other central banks around the globe.

REUTERS