Australia central bank cuts growth forecasts

Reserve Bank of Australia
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Reserve Bank of Australia

The Reserve Bank of Australia has lowered its growth and inflation estimates for 2015 and 2016, saying the economy will continue to grow at a subpar rate for a longer than expected period.

The Australia dollar had a brief spike on the news, jumping to $0.7924, before turning lower to trade at $0.7872.

In its 70-page quarterly monetary policy report, the RBA narrowed its growth forecast for 2015 to 2.5 percent versus 2.25-3.25 percent previously and saw the economy growing at 2.75-3.75 percent in 2016, down from 3-4 percent.

Underlying inflation was adjusted to 2.5 percent for 2015, versus 2-3 percent previously, and brought down its 2016 forecast range to 1.75-2.75 percent, from 2-3 percent.

Still, the RBA suggested there are green shoots in the economy, and recovery could happen sooner than expected.

"Many preconditions for a recovery in non-mining business investment are in place, so it is possible that the recovery could begin earlier or be stronger than currently forecast," it said in the statement. "It is possible that employment growth will be stronger than expected and the unemployment rate will not increase to the extent anticipated, although this could probably only be achieved with ongoing moderating in wage growth."

The RBA gave no clear indication about the future of interest rates, but reiterated that the Australia dollar is not yet weak enough to support the economy, and further falls are likely and necessary.

The central bank lowered rates this week for a second time this year, lowering the benchmark borrowing rates to a fresh record low of 2 percent.