The RBA lowered gross domestic product growth forecasts in its Statement on Monetary policy on Friday.

It cut its forecast for economic growth by half a percentage point to 2.5 per cent for the period to June 2020 and revised its year-average growth rate for 2020 from 2.5 per cent to 2.25 per cent.

RBA forecasts

The forecasts for trimmed mean inflation rate are largely unchanged as the central bank expects the measure to return to 2 per cent by the end of next year.

It now expects the unemployment rate to fall to 5 per cent by June next year slightly ahead of previous forecasts. The unemployment rate will be less than 5 percent next year, according to the forecasts.

But the Reserve Bank once again cut its near-term forecasts for household consumption from 2.4 per cent to 2 per cent at the end of the year, although it expects a pick-up in the following year to 2.6 per cent, only slightly below its previous forecasts.

“Growth in consumption is expected to increase only gradually; in part this is because, after a prolonged period of low income growth, household spending patterns are adjusting to the realisation that future income growth is likely to be slower than previously thought,” the bank said.


At his appearance before the parliamentary committee, Dr Lowe also clarified his position on government's role in lifting economic growth.

"I agree the focus should be on structural policy," he said.

"The real challenge we have is to make real wages grow at a faster rate than they have in the past five years and that comes from structural policy it does not come from short term fiscal stimulus.

"We don't think we need more stimulus – we need more structural reform."

Signs of a pick-up

The challenge was for business to take advantage of those fantastic opportunities out there and for government to help create the circumstances, he said.

Despite the short-term hit from fires, drought and the coronavirus, the RBA sees positive signs for an economic pick-up later in the year.

These include resources sector investment expanding after seven years of contraction, high commodity prices and a recovery in housing construction as house prices rise.


Higher house prices should also boost soft consumer spending, said Dr Lowe. However, he said he was not sure when and to what degree consumer spending would recover.

The central bank said it expected to make gradual progress in achieving its inflation target and full employment.

Monetary policy settings would therefore “remain accommodative for some time”.

However, it said the balances between the benefits and risks could change and depended on the state of the economy.

“If the unemployment rate were to be moving materially higher and there was no further progress being made towards the inflation target, the balance of arguments would tilt towards further easing of monetary policy,” it said.