Investing.com - The Reserve Bank of Australia Friday eased the outlook for inflation while leaving clues to its next policy moves deliberately vague.
The quarterly Statement of Monetary Policy also assumed a lower path for the cash rate and took into account the fall in the Australian dollar, but still led to a downgrade in its growth forecast. The inflation view eased to 1.25% for headline CPI by June 2015 from an earlier range in November of 1.50% to 2.50% - and well below the mid-point aim of the 2% to 3% target.
The forecasts also assumed the cash rate moves broadly in line with market pricing but the RBA cautioned that doing this "doesn't represent a commitment by the board to any particular path for policy." The last time the RBA used market pricing in its cash rate assumption forecast was in May 2011.
The RBA said growth is expected to remain below trend over the course of 2015 and then to pick up to an above-trend pace in the latter part of the forecast period, in response to rapid growth in LNG exports and the lower exchange rate and interest rates.
For the summary of the statement, see below.
"Prior to the February Board meeting, the cash rate had been at the same level since August 2013. Interest rates faced by households and firms had declined a little over this period. Very low interest rates have contributed to a pick-up in the growth of non-mining activity."
"The recent large fall in oil prices, if sustained, will also help to bolster domestic demand. However, over recent months there have been fewer indications of a near-term strengthening in growth than previous forecasts would have implied. Hence, growth overall is now forecast to remain at a below-trend pace somewhat longer than had earlier been expected."
"Accordingly, the economy is expected to be operating with a degree of spare capacity for some time yet, and domestic cost pressures are likely to remain subdued and inflation well contained. In addition, while the exchange rate has depreciated, it remains above most estimates of its fundamental value, particularly given the significant falls in key commodity prices, and so is providing less assistance in delivering balanced growth in the economy than it could."
"Given this assessment, and informed by a set of forecasts based on an unchanged cash rate, the Board judged at its February meeting that a further 25 basis point reduction in the cash rate was appropriate. This decision is expected to provide some additional support to demand, thus fostering sustainable growth and inflation outcomes consistent with the inflation target."