RBA predicts slower economic growth but confirms rate-cutting agenda: Economy roundup

The Reserve Bank of Australia’s quarterly statement on monetary policy (SoMP) has confirmed the best and worst of Australia’s economic outlook – rates are set to fall very soon, but the economy faces a period of slower growth.

The Reserve Bank of Australia’s quarterly statement on monetary policy (SoMP) has confirmed the best and worst of Australia’s economic outlook – rates are set to fall very soon, but the economy faces a period of slower growth.

The SoMP, which is watched closely by economists, essentially reinforces the statements made by RBA Governor Glenn Stevens following last week’s board meeting.

Despite growing concerns about the state of the global economy, the RBA appears confident that the economy has slowed to a point that inflation will soon be under control, meaning the bank can begin cutting rates.

“The evidence to date is that a significant moderation in demand is now occurring, and it is looking more likely that demand will remain subdued, and economic growth will be fairly slow, in the period ahead,” the bank says in the statement.

The bank also acknowledges households have borne the brunt of the local economic slowdown, as highlighted by plunging consumer confidence, retail sales and demand for loans.

“The combination of falls in housing and equity prices means that household net wealth has declined in the first half of this year.”

The SoMP is likely to put further downward pressure on the Australian dollar, which sunk to a six-and-a-half month low of US88.66c.

The local sharemarket has enjoyed a good morning after the Dow Jones Industrial Average climbed 2.6% in trade on Friday night.

The benchmark S&P/ASX200 index stood 24 points higher at 5010.2 at 12.15pm AEST, breaking through the 5000 barrier for the first time since 28 July.

The ASX is having a good little run – last week it gained 1.7%.

This morning’s profit results were good. Bendigo Bank reported a 40% jump in net profit for 2007-08, engineering and infrastructure company United Group produced a 41% increase in profit, and engineering firm Crane Group’s profit jumped 27%.

The only downer was investment bank Babcock & Brown, which expects profit in 2008 to be 25% to 40% lower than in 2007.