RBA Raises its Growth Forecast

Tradervox.com (Dublin) – The Reserve Bank of Australia has revised its previous growth outlook for the year, increasing its gross domestic product growth to 3.75 percent, up from the 3 percent it had predicted in May. In a statement today, the RBA pointed to better than expected consumer prices which will rise to 2.25 percent by the end of the year. The RBA had predicted a rise to 2.5 in its previous report. It also indicated that the Underlying inflation is set to reach 2.5 percent from the previous prediction of 2.25 percent. The central bank also highlighted that the strong currency will probably drag the economy, which is contrary to its effect in the past.

According to the quarterly monetary policy statement released by the RBA, the most significant risks revolve around the development of the exchange rate. It warned that the persistently high level of exchange rate will result to slower economic growth, which is in contrast to historical relationships considered by the bank. The statement suggested the exchange rate, which has been high for some time, is a central part of structural adjustment taken in the economy. The RBA used an exchange rate of $1.06 in its forecast, which is higher than the $1.03 used in May. In its forecast, the bank also assumed that the interest rate would remain at 3.5 percent in that duration.

According to Ben Jarman, an Economist in Sydney at JPMorgan &Chase Co. said that the RBA statement is more upbeat on the growth side. He added that the bank has left the door open as there is the unforeseen risk of the global economic slowdown. After the release of the statement, the Australian dollar traded at $1.0550 at noon in Sydney from the $1.0580 it closed in New York yesterday. It had reached its strongest of $1.0613 since March 20. The Aussie is the second best performer this year after New Zealand, registering a 3.3 percent increase this year.

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