Australia’s central bank may cut the benchmark interest rate once more in this cycle if China can maintain its growth outlook, Deloitte Access Economics said.
China has “boosted the ability of banks to lend and accelerated the go-ahead on everything from steel mills to alternative energy, hospitals and railways,” the Canberra-based research company said in a report today. “That mix helps limit blowback on global growth, which may not be far below longer term trend. But the risks are real. Either Europe or China -- or, heaven forbid, both -- could upset the applecart.”
The Reserve Bank of Australia kept borrowing costs unchanged this month as domestic economic growth and previous interest-rate reductions help the local economy weather global disruptions. The central bank reduced rates by a total of 75 basis points in May and June to help cushion the economy from the fallout in Europe and slower growth in China.
“Much still hinges on Europe and China,” Deloitte said today. “Provided neither generates worse news than already expected -- an admittedly key caveat -- then we’d stick to the view we’ve had for a while: that the overall outlook for Australian growth is still looking rather better than most people realize.”
Australia’s core inflation probably slowed to 1.9 percent last quarter, below the central bank’s 2 percent to 3 percent target range, a survey of economists showed before a July 25 government report.
The Australian dollar’s strength, a moderation in wage increases, lower oil prices and “signs of life” in productivity are helping contain inflation, Deloitte said.
“But the productivity improvement needs to continue,” it said. “And, even if it does, a steadier Australian dollar threatens less benign import prices, while wages may resume their rise as jobs recover and boomers retire.”
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