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RBA Sees Slower Growth Lifting Unemployment as Firms Wary Australia’s central bank lowered its growth forecast, predicted higher unemployment and said it was prepared to adjust policy if needed as business spending fails to fire and China struggles with an economic transition. “The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand,” the Reserve Bank of Australia said Friday in its quarterly monetary policy statement in Sydney. “Growth in the Australian economy is expected to continue at a belowaverage pace for a little longer than earlier anticipated.” Governor Glenn Stevens and his board cut interest rates to a fresh record of 2 percent on May 5 and said the reduction would “reinforce recent encouraging trends in household demand.” That positive comment and the lack of any indication that it could cut further fostered predictions the easing cycle had ended. Today’s forecasts paint a more somber picture. The RBA cut the forecast expansion for 201516 by half a percentage point from its February’s assessment to a range of 2 percent to 3 percent and now expects economic growth to strengthen to “an above average pace” in the 12 months through June 2017. Inflation is predicted to remain inside or slightly below the bank’s target. “Part of the reason the RBA cut this week is that they knew they would be lowering the growth and inflation forecasts,” said Martin Whetton, an interestrate strategist at Australia & New Zealand Banking by Michael Heath 11:30 AM AEST May 8, 2015 Australia’s central bank said the unemployment rate, currently at 6.2 percent, would probably rise further to peak at 6.5 percent in the middle of next year “and remain elevated for longer.” Photographer: Carla Gottgens/Bloomberg

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  • 5/17/2015 RBA Sees Slower Growth Lifting Unemployment as Firms Wary - Bloomberg Business

    http://www.bloomberg.com/news/articles/2015-05-08/rba-sees-slower-growth-lifting-unemployment-as-businesses-wary 1/3

    RBASeesSlowerGrowthLifting

    UnemploymentasFirmsWary

    Australiascentralbanklowereditsgrowthforecast,predictedhigherunemploymentandsaiditwas

    preparedtoadjustpolicyifneededasbusinessspendingfailstofireandChinastruggleswithan

    economictransition.

    Theboardwillcontinuetoassesstheoutlookandadjustpolicyasneededtofostersustainablegrowth

    indemand,theReserveBankofAustraliasaidFridayinitsquarterlymonetarypolicystatementin

    Sydney.GrowthintheAustralianeconomyisexpectedtocontinueatabelowaveragepaceforalittle

    longerthanearlieranticipated.

    GovernorGlennStevensandhisboardcutinterestratestoafreshrecordof2percentonMay5andsaid

    thereductionwouldreinforcerecentencouragingtrendsinhouseholddemand.Thatpositivecomment

    andthelackofanyindicationthatitcouldcutfurtherfosteredpredictionstheeasingcyclehadended.

    Todaysforecastspaintamoresomberpicture.

    TheRBAcuttheforecastexpansionfor201516byhalfapercentagepointfromitsFebruarys

    assessmenttoarangeof2percentto3percentandnowexpectseconomicgrowthtostrengthentoan

    aboveaveragepaceinthe12monthsthroughJune2017.Inflationispredictedtoremaininsideor

    slightlybelowthebankstarget.

    PartofthereasontheRBAcutthisweekisthattheyknewtheywouldbeloweringthegrowthand

    inflationforecasts,saidMartinWhetton,aninterestratestrategistatAustralia&NewZealandBanking

    byMichaelHeath

    11:30AMAESTMay8,2015

    Australiascentralbanksaidtheunemploymentrate,currentlyat6.2

    percent,wouldprobablyrisefurthertopeakat6.5percentinthe

    middleofnextyearandremainelevatedforlonger.Photographer:

    CarlaGottgens/Bloomberg

  • 5/17/2015 RBA Sees Slower Growth Lifting Unemployment as Firms Wary - Bloomberg Business

    http://www.bloomberg.com/news/articles/2015-05-08/rba-sees-slower-growth-lifting-unemployment-as-businesses-wary 2/3

    GroupLtd.inSydney.Whiletherewasnothingexplicitintodaysrelease,theimplicitbiasremains

    thattheRBAisstillonaneasingtrajectory.

    CurrencyDrops

    TheAustraliancurrencyfellafterthestatement,tradingat78.81U.S.centsat12:30p.m.inSydney

    fromabout79centsbeforetherelease.

    Thecentralbanksaidtheunemploymentrate,currentlyat6.2percent,wouldprobablyrisefurtherto

    peakat6.5percentinthemiddleofnextyearandremainelevatedforlonger.TheRBAreviseddown

    itsforecastforthetermsoftrade,orexportpricesrelativetoimportprices,by1.5percentfromFebruary

    inresponsetolowercommodityprices,andnowexpectsthemtodeclinebyabout6percentin2015.

    Ironore,Australiasbiggestexport,sanktoa10yearlowatthestartofAprilinresponsetoweaker

    demandfromChinabeforegoingontocapthebiggestmonthlygaininalmosttwoyearsasBHP

    BillitonLtd.saiditwasdeferringportworks,restrainingthepaceofitsexpansion.

    ChinaRisk

    Theriskstotheoutlookfortheglobaleconomyappearroughlybalanced,otherthanforChinawhere

    risksremaintiltedtothedownside,theRBAsaidofAustraliasbiggesttradingpartner.

    Thecentralbankistryingtofosterapickupinnonminingbusinessinvestmenttooffsettumbling

    commoditypricesanddecliningspendingonresourceprojects.Itsignaledthewaitforthistransitionin

    growthdriverscouldtakelonger.

    Indicatorsofnonminingbusinessinvestmentintentionssuggestthatasignificantpickupisnotin

    prospectoverthenextyearorso,thecentralbanksaid.Businessliaisonsuggeststhatfirmshavespare

    capacityandarestillwaitingtoseeamoresubstantialimprovementindemandconditionsbeforethey

    committomajornewinvestmentprojects.

    LoosepolicyhelpeddriveSydneyhomeprices14.5percenthigherinAprilfromayearearlierasbuyers

    respondedtorecordlowborrowingcosts.Thatishavingspillovereffects.

    HouseholdMomentum

    Dwellinginvestmentwillcontinuetogrowstronglyinthenearterm,theRBAsaid.Themomentum

    buildinginhouseholddemandwill,intime,providesomeimpetustononminingbusinessinvestment.

    Also,liquefiednaturalgasexportsareexpectedtogrowstronglyandcontribute0.75percentagepoint

    togrossdomesticproductgrowththrough201617,thecentralbanksaid.However,thedeclinein

    commodityprices,particularlyforironore,hasmeantthatasmallbutincreasingshareofAustralian

    productionisestimatedtobeunprofitable.

    ThelackofguidanceinTuesdaysratestatementpromptedtraderstoscrapbetsonfurthercutsand

    drovethelocalcurrencytoward80U.S.cents.TheRBAsaidtheoutlookfortheAussiewhichhas

    fluctuatedinresponsetobetsonwhentheU.S.FederalReservewillliftitskeyratefromnearzerois

  • 5/17/2015 RBA Sees Slower Growth Lifting Unemployment as Firms Wary - Bloomberg Business

    http://www.bloomberg.com/news/articles/2015-05-08/rba-sees-slower-growth-lifting-unemployment-as-businesses-wary 3/3

    animportantconsiderationforforecastingtheeconomy.

    TheAustraliancurrencyisalsobeingpushedupbycashseekingyieldcomingoutofplaceslikeJapanandEuropethatareconductingquantitativeeasingpolicies.

    Furtherdepreciationoftheexchangerateseemsbothlikelyandnecessary,particularlygiventhesignificantdeclinesincommodityprices,theRBAsaid,reiteratingcommentsfromTuesday.Itaddedthatincreasinglydivergentmonetarypoliciesinthemajoreconomiesarealsolikelytohaveanimportantbearingonexchangeratedevelopments.


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