RBA Remains Silent on Rate Outlook

Australia’s central bank trimmed its inflation and growth forecasts on Friday, yet highlighted green shoots in the economy and gave no clear indication that it would cut interest rates again anytime soon.  In its 70-page quarterly monetary policy report, the Reserve Bank of Australia (RBA) said weakness in business investment meant the economy would continue to grow at a below-average pace for longer than expected just a few months ago.

This, along with a benign outlook for inflation, prompted it to cut the cash rate to a record low 2.0 percent this week.  “This could be expected to reinforce recent encouraging trends in household demand and is consistent with achieving the inflation target,” the RBA said.  “The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.”

Some in markets had thought the bank would offer a more explicit promise to ease again if needed.  The RBA narrowed its growth forecast for 2015 to 2.5 percent versus 2.25-3.25 percent previously and saw the economy growing at 2.75-3.75 percent in 2016, down from 3-4 percent.