5/17/2015

RBA Sees Slower Growth Lifting Unemployment as Firms Wary - Bloomberg Business

RBASeesSlowerGrowthLifting
UnemploymentasFirmsWary
byMichaelHeath
11:30AMAESTMay8,2015

Australiascentralbanksaidtheunemploymentrate,currentlyat6.2
percent,wouldprobablyrisefurthertopeakat6.5percentinthe
middleofnextyearandremainelevatedforlonger.Photographer:
CarlaGottgens/Bloomberg

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
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5/17/2015

RBA Sees Slower Growth Lifting Unemployment as Firms Wary - Bloomberg Business

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
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RBA Sees Slower Growth Lifting Unemployment as Firms Wary - Bloomberg Business

animportantconsiderationforforecastingtheeconomy.
TheAustraliancurrencyisalsobeingpushedupbycashseekingyieldcomingoutofplaceslikeJapan
andEuropethatareconductingquantitativeeasingpolicies.
Furtherdepreciationoftheexchangerateseemsbothlikelyandnecessary,particularlygiventhe
significantdeclinesincommodityprices,theRBAsaid,reiteratingcommentsfromTuesday.Itadded
thatincreasinglydivergentmonetarypoliciesinthemajoreconomiesarealsolikelytohavean
importantbearingonexchangeratedevelopments.

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