The outlook for the Australian economy remains gloomy, the RBA says in its quarterly update, and a further cut in interest rates is still on the table

This article is more than 5 years old

This article is more than 5 years old

The Reserve Bank of Australia has refused to rule out further interest rate cuts amid concerns about slowing Chinese growth and weak business investment in Australia.

In its quarterly statement on monetary policy released on Friday, the RBA left the door open to another rate cut after slashing the cash rate to a fresh low of 2% on Tuesday.

“The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time,” the RBA said.

The RBA also revealed a gloomier economic outlook than was forecast in its last statement on monetary policy in February, revealing particular concerns about Chinese growth and local business investment.

The central bank said economic growth was expected to be in the range of 2.5-3.5% in the year to June 2016, which was a quarter of a percentage point weaker than previously predicted.

“GDP growth is forecast to remain below trend for a bit longer than had been anticipated in the February statement,” the RBA said.

It said Australia’s major trading partners, especially China, were growing slower than predicted in February.

“In China, economic growth in 2015 is projected to be a little weaker than previously forecast, reflecting slower-than-expected growth across a rage of activity indicators in the March quarter,” the RBA said.

Domestically, the central bank said business investment and public spending remained sluggish, and that mining investment would “continue subtracting substantially from growth over the next couple of years”.

This was in line with what governor Glenn Stevens said in his statement accompanying Tuesday’s rate decision in which he referred to weakness in business investment, and said public sector spending was “scheduled to be subdued”.

He also pointed to the strong Australian dollar, saying further depreciation was “both likely and necessary”, particularly given declines in key commodity prices.

Most analysts believe another interest rate cut is unlikely in the months ahead because of signs of recovery in the economy, and the risk of overheating the property market in Sydney.

On the plus side, Friday’s RBA statement said the outlook for Australian dwelling investment was up, driven by lower interest rates and strong population growth.

It also said the jobs market looked stronger than previously forecast.

“The latest data from the labour force survey suggest that recent trends in the labour market have been a bit better than earlier indicated,” the RBA said.

It said underlying inflation was predicted to remain “well contained” over coming months.