Australia's central bank, the Reserve Bank of Australia, cuts growth, inflation forecasts


The Reserve Bank of Australia cut its growth and inflation forecasts amid growing concerns about the strength of non-mining sectors.


Cameron Spencer

Australia’s central bank today slashed its growth and inflation forecasts as the strength of the Australian dollar hurts the country’s exports.

According to Dow Jones Newswires, the Reserve Bank of Australia cut its economic growth forecast to 2.75 percent for the fiscal year ending June, compared with a previous forecast of 3.5 percent.

Growth is expected to accelerate to 3 percent by the end of 2012, but still slower than the earlier estimate of 3.5 percent.

Underlying inflation, excluding the impact of a carbon tax to be introduced in the middle of this year, was expected to be 2.0 percent in 2012, compared with a previous forecast of 2.25 percent, Reuters reported.

According to the BBC, the Australian dollar has risen almost 7 percent against the US dollar since August, increasing the cost of Australian exports, which are a key driver of economic growth.

In its quarterly review statement cited by the Sydney Morning Herald, the RBA forecast "subdued" jobs growth, "weak" building activity, "soft" government spending, weak business investment outside the mining sector and inflation near the bottom of its 2-3 percent target range.

The announcement by the RBA comes three days after the central bank surprised investors by cutting interest rates by 50 basis points to 3.75 percent, highlighting growing concern about the health of non-mining sectors, Sky News reported.

Some analysts believe the revised forecasts open the door for further interest rate cuts in the coming months. 

"The downwards revision to growth and inflation leave plenty of room for rate cuts going forward," Shane Oliver, head of investment strategy at AMP Capital Investors, told Reuters.

Oliver expects interest rates to fall to 3.25 percent by the end of this year.

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