RBA Boosts GDP Forecast, Suggests More Rate Hikes

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The Reserve Bank of Australia boosted its forecasts for economic growth for the coming year and indicated more interest rate increases are coming.

The RBA issued its quarterly Monetary Policy Statement Friday in Sydney.

The central bank's forecast of GDP growth was expanded to 1.75 percent to the end of calendar year 2009, compared to its previous forecast of 0.5 percent growth.

The RBA said it projects growth in 2010 will rise to 2.25 percent for the year to June and 3.25 percent by the end of 2010. The bank's August forecast predicted a growth rate of 1.0 percent to mid-2010 and 2.25 percent for full 2010.

"Growth in business investment and exports is expected to be strong," the RBA Statement said, "underpinned by the ongoing expansion of the resources sector."

On the future of interest rates, the RBA strongly hinted that more rate hikes were on the horizon, following increases of 0.25 percent at each of the last two monthly meetings.

"The board has judged it prudent to lessen the degree of monetary stimulus that was put in place when the o utlook appeared much weaker," the statement said. "The cash rate remains at a low level, and a further gradual lessening of monetary stimulus is likely to be required over time if the economy evolves broadly as expected."

The RBA also said it expects inflation to continue to moderate, in the wake of a slowdown in wage growth and lower prices for imported goods. Underlying inflation, which excludes volatile items, is expected to drop to 2.25 percent by the end of 2010 from a projected 3.25 percent at the end of 2009.

The bank previously estimated 2.0 percent CPI contraction for 2010 and 3.25 at the end of 2009.

The government reported underlying inflation at an annualized rate of 3.5 percent in the September quarter.

(Market News Provided by RTTNews)