RBA downgrades growth and inflation expectations out to June 2017

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The RBA’s latest quarterly statement on monetary policy has just been released with the bank downgrading their forecasts for GDP and CPI.

Here is the forecast released in February’s statement on monetary policy.

And here are the updated forecasts released in May.

The RBA now expect the economy to grow 2.5% in 2015, towards the lower end of their 2.25-3.25% forecast offered in February. Beyond that, forecasts for 2016 and the year to June 2017 have also been trimmed by 0.25%.

Underlying inflation, the RBA’s preferred measure of price pressures, is expected to end 2015 at 2.5% – at the centre of its 2-3% inflation target band. However, beyond that, the bank now believe underlying inflation will sit somewhere between 1.75-2.75% at the end of 2016. Given the midpoint of this range is towards the lower end of its target band, 2.25%, it suggests the RBA could further lower interest rates later in 2015.

The assumptions the RBA use to make its forecasts were also updated. It now sees the Australian Dollar at US80c compared to US78c in February while energy prices, expressed using Brent crude, is now seen at $US70 per barrel compared to $US59 three months earlier.

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