Steady growth with a few risks: RBA

10 Aug 2012, 3:14 pm   -   Source: AAP

The Australian economy is travelling well, despite the appearance of risks from the eurozone, a higher currency and falling commodity prices.

The Australian economy is showing all the signs of solid growth in the medium to long term, leaving little reason for the central bank to consider easing interest rates.

In its Statement on Monetary Policy, the Reserve Bank of Australia (RBA) said on Friday that economic growth in 2012 would be higher than previously expected.

It said gross domestic product (GDP) would grow by 3.5 per cent in 2012, up from its 3.0 per cent forecast in May.

"The economy is then expected to grow at around three per cent over 2013 and 2014, little changed from the May statement," the RBA said.

Data including the March quarter GDP figure - which showed a higher than expected 1.3 per cent growth, contributed to the upgrade.

The RBA statement on Friday acknowledged factors including a strong currency, weakening commodity prices, and negative headwinds from Europe - could affect the domestic economy but said Australia was well placed to weather these conditions.

HSBC chief economist Paul Bloxham said the Statement on Monetary Policy showed a quiet confidence in Australia's economic growth but he noted that instability in Europe could throw this off track.

"Europe does present the biggest downside risk and it's clear that's where they think the biggest risk lies," he said.

"But in general, it's a fairly upbeat statement - their medium term growth forecasts are pretty much what they were in May, and in the short term, growth is stronger and inflation is lower."

This meant the chance of another cash rate cut in 2012 was becoming less likely, Mr Bloxham said.

AMP chief economist Shane Oliver concurred that the RBA was in 'wait and see' mode with regard to rates.

He added that most of the interest from the Statement on Monetary Policy would be the comments on the high Australian dollar.

"It might get some thinking that the Reserve Bank is close to intervening," Dr Oliver said.

"It does suggest the strong Aussie dollar is on their mind, something they're looking at quite closely.

If the Australian dollar stays strong because of investor demand for it, rather than strong commodity prices then the result could mean lower inflation in Australia.

"It would surely justify lower interest rates," Dr Oliver said.

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