Aussie central bank sees modest growth

The Reserve Bank of Australia says it sees signs of improvement including in the labour market and the non-mining sector.
The Reserve Bank of Australia says it sees signs of improvement including in the labour market and the non-mining sector.PHOTO: BLOOMBERG

SYDNEY • Australia's central bank yesterday tempered expectations of an improvement in economic growth as the nation grapples with the shift away from mining-led investment, but said there were signs of a strengthening jobs market.

The Reserve Bank of Australia (RBA) said that "in the face of significant structural change, the economy has continued to grow at a moderate pace over the past year", but added that there were signs of improving conditions including in the labour market and the non-mining sector.

"Data on the domestic economy over the past few months have generally been positive," the RBA said in its quarterly statement on monetary policy, in which it outlines its outlook for the Australian economy.

The economy has been under pressure in recent months as it exits an unprecedented boom in mining investment and nonresources activity stays soft.

The unemployment rate has been hovering around a 10-year high and increased to 6.3 per cent last month, according to official data.

The central bank lowered its growth forecast for the year to June 2016 to 2-3 per cent, from 2.5-3.5 per cent three months ago.

It said that better-than-expected labour market conditions meant that it anticipated the jobless rate to be lower than previously forecast, although it would "remain little changed over the next 18 months... before declining".

The bank had previously estimated a peak of 6.5 per cent.

The Aussie dollar climbed further yesterday after the bank indicated that unemployment had peaked.

"It would signal that the RBA's easing cycle is finished, because there's no need for them to keep cutting rates if unemployment isn't going up," said Mr Richard Grace, chief currency and rates strategist and head of international economics at the Commonwealth Bank of Australia, the nation's biggest lender.

"This could be enough to see the Australian dollar lift up towards 75 cents over the next week or so," he said.

The dollar rose 0.3 per cent to 73.67 US cents from Thursday and was set for its strongest weekly performance since mid-June.

ANZ senior economist Felicity Emmett said the latest statement suggested that interest rates would stay on hold for an extended period, with an easing bias.

"A prolonged period of elevated unemployment, together with potential upward pressure on lending rates from higher capital requirements and other regulatory measures, suggest that further monetary policy easing over the next 6-12 months cannot be ruled out," she said in a note.

AGENCE FRANCE-PRESSE, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on August 08, 2015, with the headline 'Aussie central bank sees modest growth'. Print Edition | Subscribe