MW: Australian central bank hikes economic, price forecasts
Reserve Bank of Australia hints at tighter policy ahead
By MarketWatch
TOKYO (MarketWatch) -- Australia's central bank raised its inflation and economic-growth forecasts Friday, and hinted at more interest-rate tightening ahead.
"The cash rate remains at a low level, and a further gradual lessening of monetary stimulus is likely to be required over time," the Reserve Bank of Australia said in its November statement of monetary policy.
The central bank said the country's gross domestic product is expected to grow 3.25% in the fourth quarter of 2010 from the year-earlier quarter, a sharp increase from its August forecast of 2.25% growth.
The RBA also raised its underlying inflation forecast. It now expects inflation to bottom out at 2.25% by the end of 2010, compared with its previous forecast of a 2.0%. After it hits bottom, inflation is expected to stay within the bank's 2%-to-3% target range through June 2012. Core inflation is now 3.5%.
Southern dollar heads north
The central bank also cited recent currency appreciation, which it said "occurred against the backdrop of brighter prospects for the overall economy and the recent lift in commodity prices."
But it said the stronger Australian dollar was "affecting prospects for some trade-exposed sectors of the economy."
"Despite the RBA increasing GDP and inflation forecasts, despite their bullishness for expected portfolio inflows and their forecast rate hikes over the projection period, they don't forecast [the] Australian dollar much higher," said Sue Trinh, senior currency strategist RBC Capital Markets in Sydney.
"I don't think this is bearish [for the Australian dollar] per se, just not overly bullish ... from current levels, challenging those looking for parity [with the U.S. dollar] given current fundamentals," she wrote in emailed comments.
On Tuesday, the RBA raised its key policy rate for a second month in a row, hiking it by a quarter of a percentage point to 3.50%, as expected. See full story on RBA rate hike.
The Australian dollar was buying 91.14 U.S. cents in Friday morning trade, up 0.2%.
