CANBERRA: Monetary conditions in Australia are expected to be accommodative in the coming quarters with the interest rate at the record low level of 2%. The Reserve Bank of Australia’s policymakers stated that the lower-than-target inflation outlook might give the central bank room for additional easing of the policy.
“We expect a 25 basis point reduction in the benchmark interest rate to take place in the near term, followed by an extended period of stable monetary policy conditions”, says Scotiabank.
Australia’s consumer price inflation in Q4 2015 accelerated a bit to 1.7% y/y. However, it continued to be lower than the central bank’s target rate of 2%-3%. Price pressures are likely to remain muted in the coming months. Australia’s headline inflation is expected to moderately accelerate in 2016 and reach 2.5% by the end of the year as depreciation of AUD feeds through to higher import prices. Inflation is expected to be within the RBA’s target in 2017. Meanwhile, Australia’s real GDP growth is expected to be relatively weak, reflecting weaker demand from China and lower iron ore prices.
“We expect that output will expand by 2.6% in 2016, underpinned by domestic demand, following an estimated 2.3% advance last year. Improving demand conditions globally will likely lift Australia’s economic growth to 2.8% in 2017”, says Scotiabank.
