Australia’s central bank cuts growth and inflation forecasts on housing risks

The Reserve Bank of Australia (RBA) has cut growth and inflation forecasts on consumption and housing risks.

Australia’s central bank cuts growth and inflation forecasts Source: Bloomberg

The RBA’s cut in growth and inflation forecasts is in response to weaker consumption and slumping property prices.

In its quarterly update of forecasts, the RBA cut economic growth in the year to June 2019 to 2.5% from 3.25% and by half a percentage point in the following year.

According to the statement of monetary policy released on Friday the RBA said, ‘The board has paid close attention to developments in the housing market and the implications that lower prices might have for construction activity and households’ spending decisions.’

The board said, they considered how the prospects for consumption growth would be affected if household income growth was to worsen.

The RBA predicts consumption growth to be 2.75% rather than the 3% earlier estimated.

According to the monetary statement, GDP growth forecasts is three-quarters of a percentage point lower than previously expected.

The forecasts also show core inflation reaching 2% at the end of this year and headline inflation reaching there in mid-2020.

According to the RBA’s statement, headline inflation is predicted to slump to 1.25 % in the year through June tdue to lower oil prices.

The Australian dollar falls in response

The Australian dollar fell as the statement was released. AUD/USD fell to $70.66 at time of writing, falling from $70.96 before the report.

IG market analyst, Kyle Rodda said, yield differentials and technicals suggest $0.7040/50 is next to support as 10 Year ACGB yields fell to 2.07%, their lowest since September 2016.

Mr. Rodda said the ASX was flat for the day as a result.

Traders were betting on an interest-rate cut by November, with futures data now showing a 90% chance.

It comes after governor Philip Lowe this week said he sees the chances of an interest-rate as “more evenly balanced.”

Analysts say the RBA’s change in stance is due to weaker data over the past few months, which is also connected to the falling housing market.

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