RBA cuts CPI forecast, upbeat about growth
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SYDNEY, May 10 AAP
May 10 2013, 1:25PM
There are even fewer inflation hurdles for the Reserve Bank of Australia (RBA) to cut the cash rate further, if need be.
The RBA's May Statement on Monetary Policy, released on Friday, cut its consumer prices index (CPI) forecast to 2.25 per cent for the year to June 2013, from the 3.0 per cent published in its February statement.
The central bank uses its control over the cash rate to keep inflation between two to three per cent over the medium term.
On Tuesday, the bank reduced the cash rate to a record low of 2.75 per cent, saying that low inflation allowed the cut to further help support sustainable growth.
On Friday, the RBA was upbeat about the local and global economies.
"Growth of Australian major trading partners is expected to continue to exceed that of the world, reflecting the faster growth of Australia's trading partners in Asia," the RBA said.
The bank maintains its forecast that the mining investment boom will peak, or will be close to its peak, in 2013/14 but was more positive about the other sectors of the economy.
"The forecast for consumption spending has been revised a little higher since the February statement as prospects for household demand appear slightly more positive," the bank said.
"For the March quarter, growth in consumer spending looks to have recovered, with a strong pick-up in retail sales early in the year and the measure of consumer sentiment above their long-run average.
"There are signs of an increasing appetite for borrowing in the household sector, with approvals for housing and personal loans increasing over recent months."
While the investment phase of the mining boom might be nearing its peak, there will be more mines and liquefied natural gas projects going into production and starting to add to export volumes.
"The outlook for exports remains strong," the RBA said.
"Given the significant investment that has occurred to date, and that is still in the pipeline, the Bureau of Resources and Energy Economics expects bulk commodity exports to increase at an annual rate of around 10 per cent over the next six years."
The RBA revised its forecast for gross domestic product (GDP) growth in the year to December 2013 as 2.5 per cent, compared with two to three per cent in its February estimate.
March quarter GDP figures from the Australian Bureau of Statistics are released on June 5.
The RBA said GDP in 2014 will be 2.5 per cent to 3.5 per cent, matching the February forecast.
CPI for the 12 months to December 2014 is expected to be between two to three per cent, matching the RBA's previous forecast.
By Jason Cadden