- Reserve Bank of Australia
The Reserve Bank of Australia revised sharply downwards its inflation forecasts after slashing interest rates just days earlier due to weak first-quarter inflation data. Nevertheless, the central bank said that the Australian Dollar's sharp depreciation over the last few years is expected to continue to put upward pressure on prices. The central bank cut the official cash rate by 25 basis points to 1.75%, after keeping rates on hold for a year. The decision came after the Australian Bureau of Statistics released quarterly CPI data, showing headline inflation plunged from 1.7% in the final quarter of 2015 to 1.3% last quarter. Australia's weak inflation environment could see the RBA taking interest rates even lower if the central bank's weak underlying CPI outlook materializes.
The RBA downgraded its inflation forecasts, from expecting underlying inflation to remain within the target range, albeit at the lower end until the fourth quarter of 2016, to now anticipating 1-2% underlying CPI inflation for the year ending December 2016, and 1.5-2.5% inflation for the rest of the forecast period. While the RBA's inflation forecasts were significantly lower than the previous estimated, the bank's economic growth outlook was largely unchanged. In the short term, the RBA predicts slightly stronger growth of around 3%, but left its longer-term GDP forecasts intact at 2.5-3.5%.
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