As per the recent statement on Monetary Policy, the Reserve Bank of Australia (RBA) has majorly retained its views as per the earlier provided forecasts with the following key aspects:
GDP growth in Australia is expected to pick up: GDP growth has been said to be potential in 2016/17 and is expected to move up to be between 3 and 4 per cent by the end of the forecast period. This will also get a boost from resource exports while mining investment might still weigh heavier against growth for some time. Household consumption, dwelling investment and exports have also found support from low interest rates and depreciation of the exchange rate. This is expected to further enhance the non-mining business investment, in turn, boosting the economic growth.
Inflation forecasts unchanged: For the September quarter, inflation data was found to be as per expectations and was about 1½ percent in year-ended terms over recent quarters. The headline inflation was around 1¼ per cent and was impacted by the petrol prices over the recent years. The underlying inflation is now expected to stay at current rates in the short term while the same is expected to move up to about 2 percent by the end of forecast period.
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Underlying Inflation (Source: Reserve Bank of Australia)
Subdued growth in Australia’s major trading partners while Australia’s terms of trade has risen: The growth in trading partners is said to decline to some extent while there is moderate easing in China. On the other hand, the restriction on domestic production of commodities for keeping a check on overcapacity by the Chinese authorities has contributed to a rise in bulk commodity prices. This along with other factors, in turn, has resulted in an increase in Australia’s terms of trade. Commodity price movement coupled with growth in economic activity for major advanced economies in support of accommodative monetary policy and improvements in labour market conditions, may have an upward pressure on global inflation. Inflation in the United States has increased since last year while the same is below the European Central Bank’s target.
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