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Australian central bankers bullish on local economy despite global headwinds

Xinhua, February 5, 2016 Adjust font size:

Australia's central bankers remain bullish on the local economy despite the risk of a sharp slowing of China's economic activity or financial stress could spill-over into the region, likely leaving official interest rates on hold over 2016.

Though the Reserve Bank of Australia trimmed its inflation outlook for financial year ending June 30 and 2017 growth projections on Friday, most estimates, including GDP growth forecast of 2.5 percent to 3.5 percent over the year to December 2016 remained unchanged.

The RBA anticipates growth to increase to 3 percent to 4 percent by June 2018.

"Low interest rates and ongoing growth in employment are expected to lead to a further pick-up in household incomes and demands" supported by lower gasoline prices, the Reserve Bank of Australia said in its quarter Statement on Monetary Policy, released on Friday.

Economists are split as to whether Australia's central bank will further ease interest rates in 2016 from their current record low two percent, as domestic economic conditions are sound.

The RBA's rate hold in Tuesday was in part to assess the impact of recent global market volatility on growth.

"The RBA's own forecast for the unemployment rate to remain broadly flat over the year is classic sign of policy on hold," Commonwealth Bank of Australia senior economist Gareth Aird said, despite the market pricing in a better-than-80-percent chance of rate cut in the next six months.

"This essentially reflects the balance of risks in the global and domestic economy, coupled with the RBA's conditional easing bias."

The vexing issue of the Australian economy over the past year has been below-trend economic expansion while recording above trend employment growth, including the largest increase on record at the end of 2015.

"It's possible that the strength in the labor market data contains information about the economy not apparent in the national accounts data," the bank said.

"Economic activity in labor intensive service sectors, such as household services, may help to explain the strength in employment growth over 2015 despite below average GDP growth." Endit