It left estimated economic growth at 2.5 percent to 3.5 percent this year and next and predicted unemployment will remain around the current 5.7 percent.
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The changes to the inflation forcasts are significant when it comes to outlook for monetary policy, and does little to dispel the notion that the bank will follow up May’s rate cut with another, perhaps as soon as August.
“However, wage growth has been slower than implied by its historical relationship with the unemployment rate”, the RBA said.
However, the bank has revealed that it “took careful note of recent developments in the housing market, noting the effects of supervisory measures to strengthen lending standards, the recent easing in housing credit growth and the abatement of strong price pressures” when deciding to lower the cash rate to a fresh record low.
The central bank said the outlook for consumer prices was a key source of uncertainty.
That comment strongly implies that if the 25-basis-point rate cut, which has been passed on in full by most of Australia’s major banks, re-stokes demand and prices in the housing market then it will be the last delivered by the RBA in this cycle.
Lowe, 54, has been at the central bank for 36 years and has been deputy governor for four years.
The central bank slashed the cash rate to the new all-time low of 1.75 per cent on Tuesday, citing sluggish consumer prices, and it has now downgraded its forecasts for inflation.
The need to bring up sagging inflation was the main motivation for Tuesday’s unexpected rate cut.
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On the positive side, the RBA forecast household consumption would continue at an above-average pace even as wage growth remained weak, implying a further decline in the savings ratio. Yet there is still no sign of an uptick in investment outside the mining industry it is seeking.
