World Economic outlook - Australian inflation rate outlook February 2012 : At its meeting on February 6, 2011, the Board of the Reserve Bank of Australia decided to leave its cash rate unchanged at 4.25 percent, after two consecutive rate cuts brought the benchmark rate down from 4.75 percent. The Board’s decision came as a surprise to many, as a 25 basis points rate cut had been widely anticipated. The Board’s decision was based on expectations that growth of the Australian economy would continue close to trend and inflation would converge close to target. This assessment was supported by recent data that suggested continuing moderate expansion in the U.S., robust, albeit moderated, growth in China, and recovery of commodity prices over the past couple of months.
The Australian economy continued to record moderate growth, with GDP estimated to have increased by around 2.75 percent over 2011, which is a little below average, partially reflecting the extreme weather events early in the year. Although labor market conditions softened during 2011, the unemployment rate remains low at around 5 percent. CPI inflation had declined as expected, as the large rises in food prices that resulted from the floods a year ago eased. The underlying inflation rate is around 2.5 percent, the midpoint of the medium-term target range, with year-ended CPI inflation expected to fall further over the next quarter or two.
Looking forward, with growth expected to be close to trend and inflation close to target, the Board has judged that the current monetary policy will be appropriate in the near-term. The outlook for inflation is little changed from the forecasts published in the November Statement, with the Bank expecting inflation to be in the 2-3 percent range over the coming one or two years. Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy. The next rate decision meeting is scheduled for March 6, 2012.
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