While the RBA expects GDP growth for the end of 2014 to be around 2.25 to 3.23 per cent, Perpetual Investments has noted this is below the inflation upgrade in a statement reflecting on the RBA announcement.
While the RBA did not give an explicit prediction for unemployment, it did state it was likely to increase until the second half of 2014 given that growth continues to remain below trend.
It also believes the announcement by Governor Stevens that the domestic unemployment rate is around 6.3 per cent could also generate some downside risk.
Perpetual head of investment market research Matt Sherwood said he expects the next increase will be in the March quarter 2015, making 2014 one of the few years in the past three decades where rates remain on hold.
“The Bank did not give any suggestion that with higher inflation they will be looking to reduce the amount of monetary stimulus in the near term, instead opting to say that the most 'prudent course is likely to be a period of stability in interest rates',” said Mr Sherwood.
He said, this is “Central Bank speak for rates are on hold while the mining investment fade plays out, but if inflation continues to rise as it did in the December quarter, or growth picks up, we reserve the right to progressively and carefully raise the target cash rate from the current record-low setting of 2.5 per cent.
"Given how Australia has come out of previous mining investment unwinds over the past 160 years (with massive inflation and unemployment and a large recession), if we can keep growth above +2.5 per cent in 2014/15, inflation contained (around the top of the RBA band) and unemployment below 6.5 per cent, if would be a tremendous achievement and the RBA should be congratulated for the way they have conducted monetary policy over the past seven years."
