The Reserve Bank of Australia trimmed its near-term growth and inflation forecasts Friday and said it has scope to cut interest rates if needed, just days after stunning markets by keeping its cash rate steady at 4.25% instead of an expected cut.
Forecasting core inflation to remain within its 2%-3% target band through 2012 and 2013 the bank painted a mixed outlook for the domestic economy split between a red-hot resources boom while industries such as tourism and manufacturing suffer from a high exchange rate.
It noted investment is continuing to pour into resources projects at a rapid pace while conditions in the non-mining economy are subdued, with consumer demand particularly weak.
Economic growth in year ended terms is expected to be 3.5% in June 2012, the RBA said in its quarterly economic outlook, down from its 4.0% forecast in November. It left its outlook for December 2012 GDP unchanged at 3%-3.5%.
Core inflation is expected to be at 2.25% in June 2012 compared with a previous forecast of 2.5%. It's December outlook is unchanged at 2.75% while it cut the consumer price inflation forecast to 1.75% for June from 2.0%.
In the latest assessment the bank highlighted a slew of downside risks to world growth stemming largely from Europe's debt crisis but said it has policy ammunition to respond if domestic conditions deteriorate.
The current inflation outlook would, however, provide scope for easier monetary policy should demand conditions weaken materially, the RBA said.
Teasing out the exact impact of the strong Australian dollar--blamed by manufacturers for forcing job shedding--and the country's once in a century mining boom is proving difficult, the bank said.
It remains difficult to judge the net impact of, on the one hand, a once in a century investment boom in the resources sector and, on the other, a high real exchange rate, it said.
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