There is a progress in the structural changes from the mining sector to other sectors in Australia. The Australian economy was underpinned by a weaker AUD and the expansionary monetary policy that boosted domestic consumption an industries excluding the mining sector. In 2016, the economy is expected to continuing growing at the decent rate recorded in 2015, said Commerzbank in a research note.
Meanwhile, the Australian labor market has also rebounded that began in mid-2015. Australia’s jobless rate declined to 5.7% recently from early 2015’s 6.3%. But inflation pressure continues to be low. Inflation gauged by Reserve Bank of Australia decelerated below the central bank’s target range of 2%-3% in the March quarter of 2016.
With the deceleration of inflation and AUD’s marked appreciation since the beginning of 2016, the central bank reacted by cutting its benchmark rate to 1.75%. The central bank is worried that a stronger AUD might limit the “adjustment process of the economy”. A weaker currency might aid in countering the negative impacts of declining prices of commodity that has exerted tremendous pressure on the country’s terms of trade, noted Commerzbank.
Even if the commodity prices have recovered slightly, they remain much below the 2014 levels. According to the RBA, iron ore and coal prices are expected continue being impacted from subdued demand from China for some time. Weakness in China’s economy continues to be a major factor of risk. If the situation worsens there, the RBA might further lower the key interest rate, added Commerzbank.
