The Australian Financial Review carrying some points made by UBS after yesterday's cash rate decision from the Reserve Bank of Australia
Australia's "neutral" cash rate, the level at which the economy can grow at trend without stoking inflation, has dropped from 5 per cent to 3 per cent since the global financial crisis
UBS cites:
- decline in the average long-term gross domestic product growth rate
- Subdued inflation
- Widening gap between the cash rate and what is charged by lenders (widest since 1995)
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The UBS economist, George Tharenou , says of the outlook now for the RBA:
- may cut the cash rate again if it downgrades its long-term growth forecast
- "... the RBA traditionally-estimated trend GDP is 3 per cent to 3.25 per cent, albeit a recent speech by Governor Stevens questioned if trend has decreased
- (Current) RBA forecasts ... 3.75 per cent in 2017
- ... , if the RBA again lowers their forecasts, it would be a dovish signal, as downgrades to the growth outlook have historically often led to rate cuts"
