Powered by MOMENTUM MEDIA
subscribe to our newsletter

RBA troubled with low inflation: HSBC

Persistently low inflation is creating a headache for the Reserve Bank of Australia, especially given that it is reluctant to make further cuts to interest rates, according to HSBC.

In its update for the first quarter of 2016, the bank noted that growth is finally lifting as the Australian economy rebalances away from mining – but inflation is still low.

“The extended period of below-trend growth following the mining boom is weighing on local inflation,” wrote HSBC Australia chief economist Paul Bloxham and fellow economist Daniel Smith.

“Growth has now been below trend for three years and the unemployment rate is well above its full employment level of around five to 5.25 per cent,” the HSBC report said.

The challenge for the RBA is that inflation has fallen too close to the bottom end of its two to three per cent target band, and more growth may be needed to keep it on target, the report said.

Advertisement
Advertisement

PROMOTED CONTENT


“However, with interest rates already at record lows and having boosted asset prices significantly, the RBA is concerned that further cuts could threaten financial stability,” HSBC said.

“An alternative strategy may be to encourage the Australian dollar lower, but this clearly relies on offshore developments as much as domestic ones.”

With underlying inflation threatening to fall below the target band in year-on-year terms, HSBC has predicted a 25 basis point cut to the official cash rate in the first half of 2016.

“However, there is significant uncertainty about this, particularly given the RBA’s considerable reluctance to make further cuts,” the bank said.

“The Australian government has scope to support growth with fiscal policy although, so far, it has been unwilling to consider this as an option.”

[Related: Deflation fears likely to ease, says NAB]

RBA troubled with low inflation: HSBC
mortgagebusiness

Latest News

The chairman of the financial services regulator has resigned from his position, effective immediately. ...

Refinancing settlements for the first nine months of the calendar year 2020 are up 27 per cent on last year’s volumes, having peaked in Ju...

The Tasmanian-based lender has seen a 43 per cent rise in settlements in the first quarter of the financial year, driven by strong demand fr...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: Victoria’s surprising appetite for new homes

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.