Australian dollar plunges again as RBA cuts economic forecasts

Australian dollar plunges again as RBA cuts economic forecasts

The Reserve Bank has dramatically revised down its economic forecasts amid the ongoing property market correction, prompting the Australian dollar to plunge again.

The Aussie dollar, already down about 2.5 per cent this month against the US dollar, dropped another third of a US cent on Friday after the RBA cut both inflation and GDP forecasts.

The RBA this week kept the cash rate at a record low 1.5 per cent for a 30th month but dropped its longstanding prediction that an improving economy meant the next move was likely to be upwards.

It elaborated upon its new neutral stance in Friday’s Statement on Monetary Policy, saying it now expects economic growth of 2.5 per cent in the 12 months to June this year – down from its previous forecast of 3.25 per cent.

It similarly slashed its inflation forecast for the same period from 2.0 to 1.25 per cent.

Its annual GDP and inflation forecasts for the year to June 2020 were cut from 3.25 and 2.25 per cent to 2.75 and 2.0 per cent respectively.

The RBA cited slowing growth in other advanced economies, sluggish consumer spending and the ongoing property market correction.

“This reassessment of the outlook for consumption is informed by the downward revision in the national accounts and, to some extent, the recent declines in housing market activity,” the RBA said in the quarterly statement.

“The outlook for household consumption growth continues to be one of the key sources of uncertainty for the domestic growth forecasts, particularly given uncertainties around the outlook for income growth and how developments in housing markets will affect household decision-making.”

The Australian dollar, which was worth 72.95 US cents on January 31, slipped from 70.99 just before the statement was released to 70.65 at 1220 AEDT.

Source link