RBA governor Philip Lowe is upbeat on the economic outlook.
The Reserve Bank of Australia has upgraded its outlook for the domestic economy and is tipping the unemployment rate to fall below 5 per cent for the first time in almost a decade.
Despite the bullish forecasts, the RBA left the official interest rate unchanged for the 27th consecutive month at its monetary policy meeting on Tuesday and gave no indication it would lift rates from a record-low 1.5 per cent any time soon.
RBA governor Philip Lowe said in a statement that economic growth was forecast to average about 3.5 per cent this year and in 2019 – above the previous estimates of 3.25 per cent.
The central bank’s outlook for the labour market was also more positive, with the RBA tipping the jobless rate to decline to 4.75 per cent in 2020.
“The vacancy rate is high and there are reports of skills shortages in some areas,” the RBA’s statement said.
The Australian dollar was little changed after the RBA’s statement, trading at around US72.10¢.
In the face of risks from falling house prices, a US-China trade skirmish and higher global interest rates, the RBA’s more upbeat forecasts were premised on a run of recent strong domestic economic data.
Annual economic growth roared to 3.4 per cent in the June quarter and the jobless rate fell to 5 per cent in September, two years earlier than the RBA had forecast.
The last time the unemployment rate was below 5 per cent was January 2009, before the global financial crisis pushed up the jobless rate.
Despite weakness in inflation in the September quarter partly due to an increase in the government’s childcare subsidy, the RBA expects inflation to rise a bit higher than its earlier forecast of 2.25 per cent in 2020.
JPMorgan chief economist Sally Auld said interest rate hikes were still far enough away for the RBA not to be too explicit.
“While these revisions are in part a mark-to-market exercise given better growth and labour market outcomes of late, they also signal that the RBA now has greater confidence in the economy’s trajectory in coming years.”
“The natural read through would be that this implies that the potential for hikes is now also earlier relative to the bank’s thinking, but the RBA refrained from changing its forward guidance on rates,” she said.
The central bank has held interest rates steady since cutting the country’s cash rate by 0.25 of a percentage point in August 2016, a move that heralded the start of a record-breaking run of monetary policy inaction.
The central bank has been waiting for falling unemployment to translate into a sustainable increase in wages to bring inflation firmly back into its 2 to 3 per cent target range.
Meanwhile, consumer confidence rose 1.9 per cent, according to the latest weekly reading by the ANZ-Roy Morgan survey, meaning consumer sentiment has regained almost two-thirds of the drop suffered on the weekend of the Wentworth byelection.
More to come.
Autralia economy news