Australian Reserve Bank forecasts lower growth, higher inflation

The Reserve Bank of Australia (RBA) released its statement on monetary policy on Friday, warning of lower GDP growth, and higher inflation than previously forecast.

The central bank's range on growth for Australia in 2017 is now between 1.5 to 2.5 percent, down a full 1 percent on the growth levels they predicted in November last year.

The fall was attributed to lower than expected gross domestic product results during the third quarter of 2016, with weaker household spending numbers playing a huge part in that contraction.

"Subdued growth in household income is likely to continue to constrain consumption growth over the period ahead," the RBA said.

"The forecast for consumption growth has been scaled back a little to reflect recent data and a view that consumption is unlikely to grow materially faster than income over the next couple of years."

Looking ahead, the Reserve Bank was confident that the growth will continue for Australia into 2018, with their assessment predicting a range of 2.75 to 3.75 percent, but warns there is uncertainty due to possible change of U.S. policies.

"There is a rising risk that more restrictive and protectionist trade and immigration policies under a new administration could harm global growth prospects," the RBA said.

Not all economists share the rosy outlook of the Reserve Bank. Paul Dales of Capital Economics said in a note, the RBA is expecting Australia's "slow growth" and "low underlying inflation problems" to be resolved in the next few years.

However, Dales contends this would require a period of an almost perfect economic climate, one which rarely happens, and leads him to believe the RBA will be "disappointed."

"We believe that GDP growth will be closer to 2.0% this year than 3.0% and that underlying inflation won't rise back to 2.0% until 2019," Dales said.

Although Dales said the rates may not be cut by the RBA, from their current 1.5 percent cash rate as it could contribute to investor demand for housing, he still predicts change may very well be on the way.

"Even so, rates are more likely to fall this year than rise," Dales said.

"We still think there's a chance that a softer housing market will give the RBA a green light to try and raise underlying inflation to 2.0% faster by cutting rates to 1.0%." Endit