5/17/2015 RBA Sees Slower Growth Lifting Unemployment as Firms Wary - Bloomberg Business

http://www.bloomberg.com/news/articles/2015-05-08/rba-sees-slower-growth-lifting-unemployment-as-businesses-wary 1/3

RBASeesSlowerGrowthLifting

UnemploymentasFirmsWary

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

byMichaelHeath

11:30AMAESTMay8,2015

Australiascentralbanksaidtheunemploymentrate,currentlyat6.2

percent,wouldprobablyrisefurthertopeakat6.5percentinthe

middleofnextyearandremainelevatedforlonger.Photographer:

CarlaGottgens/Bloomberg

5/17/2015 RBA Sees Slower Growth Lifting Unemployment as Firms Wary - Bloomberg Business

http://www.bloomberg.com/news/articles/2015-05-08/rba-sees-slower-growth-lifting-unemployment-as-businesses-wary 2/3

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

5/17/2015 RBA Sees Slower Growth Lifting Unemployment as Firms Wary - Bloomberg Business

http://www.bloomberg.com/news/articles/2015-05-08/rba-sees-slower-growth-lifting-unemployment-as-businesses-wary 3/3

animportantconsiderationforforecastingtheeconomy.

TheAustraliancurrencyisalsobeingpushedupbycashseekingyieldcomingoutofplaceslikeJapanandEuropethatareconductingquantitativeeasingpolicies.

Furtherdepreciationoftheexchangerateseemsbothlikelyandnecessary,particularlygiventhesignificantdeclinesincommodityprices,theRBAsaid,reiteratingcommentsfromTuesday.Itaddedthatincreasinglydivergentmonetarypoliciesinthemajoreconomiesarealsolikelytohaveanimportantbearingonexchangeratedevelopments.