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April, 2019 6:41 PM



Australia central bank cuts growth outlook, holds rates

Australia central bank cuts growth outlook, holds rates

Australia's central bank cut its economic growth forecasts and kept interest rates at a record low Tuesday, as house prices in major cities slumped and consumer spending weakened.

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05.02.2019 04:15 PM

Australia's central bank cut its economic growth forecasts and kept interest rates at a record low Tuesday, as house prices in major cities slumped and consumer spending weakened.

"Some downside risks have increased," governor Philip Lowe said after the Reserve Bank of Australia's first board meeting of the year. 

The central bank predicted the economy would expand 3.0 percent in 2019, much slower than its previous forecast of 3.5 percent. Borrowing costs were held at 1.50 percent, where they have been since August 2016.

"The main domestic uncertainty remains around the outlook for household spending and the effect of falling housing prices in some cities," said Lowe.

House prices, particularly in Sydney and Melbourne, continued to fall in January and the pace had sped up over the past three months, leading property data provider CoreLogic said last week.

Other economic indicators have also taken a negative turn, with new retail sales figures on Tuesday falling 0.4 percent in December, below market expectations.

Lowe said inflation -- at 1.8 percent in December and below the bank's target range of 2.0-3.0 percent -- would pick up gradually but would "take a little longer than earlier expected".

Analysts said the gloomier outlook, which comes as the US Federal Reserve, Bank of Canada and European Central Bank stepped back from their hawkish monetary policy stances, made rate hikes less likely.

The Reserve Bank has said a rate increase rather than a cut was more likely in the coming few months or year on the back of a strong labour market, lifting business investment and higher levels of government infrastructure spending.

However, Ben Udy, Australia and New Zealand economist at Capital Economics, said in a note: "Although the RBA took a more dovish tone when it left rates on hold today we think it will need to consider cutting rates before long as the economic outlook deteriorates."

He added that economic growth could fall to as low as 2.0 percent this year, forcing the central bank to slash rates to stimulate the economy.
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