RBA expects Australia GDP to rebound after weak Q3 reading

The Reserve Bank of Australia released minutes of the board meeting held on February 7 where policymakers voted to leave the cash rate unchanged at 1.50 percent. RBA continued with its broadly upbeat commentary in the minutes.

The RBA attributed decline in Q3 GDP to bad weather, coal supply disruptions and slower than expected growth in consumption. It noted that the Australia’s economic slowdown in Q3 2016 was likely temporary and the economy would rebound in the fourth quarter. The bank forecast growth to pick up to around 3 percent in the year-ended terms later in 2017, and to remain above estimates of potential growth over the rest of the forecast period.

Policymakers expect the underlying inflation to pick up gradually, largely reflecting the rising unit labor costs and the diminishing spare capacity. Further, the central bank predicts that rising resource exports in a more positive global environment will spur growth in Australia as the drag from falling mining investment wanes.

“We expect that the labour market – rather than inflation - will be key to whether there is a rate cut in 2017. Our base case is that the cash rate remains at 1.5% throughout both 2017 and 2018. We see risks to this view skewed more to a rate cut than to a hike, as growth in 2018 could disappoint.” said Westpac in a report.