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The RBA raised its economic growth forecasts and expected further gradual lessening of monetary stimulus

Fri, Nov 6 2009, 02:37 GMT
by ecPulse.com analysis team

ecPulse.com

The Reserve Bank of Australia released its quarterly monetary policy statement today. The bank raised its economic growth forecasts adding that the economy will grow stronger than anticipated. On the other hand, the bank said that interest rates may increase gradually in the upcoming period.

The reserve bank expected the economy to grow 1.75 this year compared with previous forecasts of 0.5% and economic growth is anticipated to accelerate to 2.25% by mid 2010 and to 3.25% by the end of 2010. As for growth in 2011, the bank expected gross domestic product to grow 3.25%.

However, the RBA expected business investment to continue increasing along with more improvements in the exports sector that is based on increasing demand for natural resources and raw materials.

Regarding inflation, the bank said that core inflation will reach 3.25% in 2009 before it slow to 2.5% by mid 2010 and then to 2.25 by the end of the year. The bank added that inflation will be within the target range through June 2012, worth mentioning that bank aims to keep inflation between 2% and 3% on average.

The slowdown in wage growth in addition to higher currency value that resulted in lower costs of imported goods may lead to further moderation in underlying inflation, the RBA said.

Moving to interest rates, the Australian reserve bank said that it may lessen monetary stimulus gradually in the upcoming period which means more raise in interest rates are expected along with improvements in economic activity, having in mind that the Australian economy avoided technical recession expanding 0.4% in the first quarter then gross domestic product grew 0.6% in the second quarter of this year.

Glenn Stevens the reserve bank governor was the first in G 20 to raise borrowing costs after deciding in October to raise interest rates by 25 basis points that was followed by a similar decision this month making interest rates settle at 3.50% after it was kept for six months at 3.00% the lowest in half century.

More rate hikes remain expected next month as forecasts refer to another 25 basis points increase in interest rates. However, the RBA said in its statement that the cash rate remains low and the bank's board members will be monitoring economic conditions to set a monetary policy that support a sustainable economic growth.

The bank improved its outlook for the labor market saying that employment growth is expected to be "subdued" this year before it accelerates in 2010, noteworthy that unemployment rate declined to 5.7% in September after it settled at 5.8% for three months opposing forecasts that referred to 6%.

The Australian dollar gained against its American counterpart and other major currencies after the release of the RBA's statement and it traded around 0.9116 against the U.S dollar at 2:05 GMT after reaching a high of 0.9128 and it traded around 1.6298 against the euro and 82.61 against the yen.

Published on  Fri, Nov 6 2009, 02:38 GMT