RBA alert to risks of 'prolonged cyclical downturn' in China
The RBA has raised concerns about the risks to Australia from a faltering Chinese economy, as it left rates steady at 4.35%.
The RBA has admitted that the uncertain trajectory of the faltering Chinese economy remains a huge variable for the Australian economy, as it kept interest rates on hold and warned that it could not yet rule out further increases in the current cycle.
The latest Statement of Monetary Policy from the central banks shows that inflation is slowing faster than the RBA was expecting last year, but forecasts that it still won’t reach the target band of between 2% and 3% until 2025.
This fresh expectation from the central bank may knock some of the excitement out of the markets with the forecasts effectively ruling out a near-term rate cut. The RBA now expects underlying inflation to slow to 3.1% by the end of this year, before reaching 3% in June 2025 By December 2025, it’s expected to have fallen to 2.8%, before slowing further.
This is a slight improvement on the forecasts from November, but not enough for the Michele Bullock to have her finger hovering over the rate cut button as eagerly as market onlookers may have hoped. The statement concludes that while "inflation is easing, it remains high" and as such "a further increase in interest rates cannot be ruled out."
