The Reserve Bank has confirmed its downgraded near-term economic growth forecasts, but has kept its longer-term expectations unchanged in a policy update that did nothing to sway economists expecting rate cuts this year.
The RBA this week kept the cash rate at its long-term record low 1.5 per cent and on Friday confirmed the importance of labour market strength to obviate the need for cuts.
It reiterated its belief that the rate of unemployment is likely to remain unchanged, a scenario that lends weight to the opinion of those expecting as many as two rate cuts this year.
JP Morgan chief economist Sally Auld said this reinforced the dovish aspects of Tuesday's rates statement and, while there was little to indicate what the RBA would need to trigger a cut, she still expects two 0.25 percentage point cuts.
"Easier monetary policy in Australia is a question of when, not if," Ms Auld said, suggesting there was a "risk of a terminal cash rate sub one per cent".
The RBA said it now expects annual GDP growth to June of 1.75 per cent, compared to the 2.25 per cent it flagged six months ago, with the December target downgraded from 3.0 to 2.75 per cent.
The central bank, which has also trimmed its mean inflation targets for the same periods, still expects economic growth to stay at 2.75 per cent over the next 18 months but was unusually precise about the technical assumptions underpinning its forecasts.
The RBA said the forecasts were based on the assumption that the cash rate will be cut twice to 1.0 per cent.
TD Securities strategists Annette Beacher and Prashant Newnaha said they expect the cuts to come in August and November, although the first could come as early as July if the labour market rapidly deteriorated.
The RBA noted there was some uncertainty about the labour market.
"The decline in job advertisements points to a much weaker outcome for employment in the near term than the leading indicators from business surveys," the RBA noted.
"The unemployment rate is expected to remain around five per cent for some time, before edging lower ... (which) suggests that there will continue to be some spare capacity in the labour market over the next few years, although there is ongoing uncertainty around its extent."
The Australian dollar ticked up following the quarterly Statement of Monetary Policy, from 69.91 US cents to 70.19, but fell back to 69.99 at 1352 AEST.
