In its Central Bank Watch report for June, global asset manager Principal Global Investors said that while the Reserve Bank of Australia has maintained its neutral policy stance for several months since the August 2013 RBA board meeting, the central bank is concerned mining investment could “soon fall quite sharply”.
Principal Global Investors said the RBA is also worried that fiscal consolidation will weigh more heavily on growth than previously expected.
Although GDP growth was 1.1 per cent in the first quarter, recent data has been weaker, according to the report.
Principal Growth Investors said retail sales slowed in the three months to April, while house prices fell in May for the first time in a year, suggesting a slowdown in the market.
Employment also fell for the first time in 2014.
“It was only a fall in the participation rate that stopped the unemployment rate from rising above 5.8 per cent,” said the report.
The report said the RBA is also worried about the weakness of wage growth which it expects to remain “constrained over the year ahead”.
Principal Global investors said while inflation remains consistent with the RBA’s target, the strengthening exchange rate “coupled with declining commodity prices means that the policy rate is more likely to be reduced than increased”.
