In Australia, monetary conditions are set to remain accommodative over the coming quarters with the benchmark interest rate set at the record low level of 2.00%. The Reserve Bank of Australia (RBA) lowered the policy rate by 25 basis points in May and has kept it on hold following subsequent monetary policy meetings, most recently on October 4th.
The accompanying minutes highlight that downside risks to the growth outlook have increased with policymakers raising concerns around China's economic growth deceleration and weaker momentum in East Asia more generally. As a result, we have adjusted our outlook for the RBA's benchmark cash rate and now expect the central bank to implement further monetary easing by year-end.
"Price pressures in the economy will remain weak through the end of the year. Inflation will likely close 2015 at 1.9% y/y before accelerating moderately in 2016 to 2.5% as AUD depreciation feeds through to higher import prices; price growth is then likely to decelerate slightly, closing 2017 at 2.3% y/y", says Scotiabank.
Consumer price inflation in Australia held steady in the third quarter of 2015 at 1.5% y/y, but still remains below the RBA's 2-3% target.
"We forecast Australian real GDP growth will average 2.3% y/y this year, supported by domestic demand and 2.6% in 2016. Risks to the outlook remain tilted to the downside given China-related uncertainties. Our growth forecast for 2017, although slightly stronger, still remains below Australia's historical annual growth rate, at 2.8% y/y", argues Scotiabank.
