AUD tumbles after RBA announces lower inflation forecast

The Reserve Bank of Australia published its inflation forecast for 2016 today. The cut in its expectations caused the Australian dollar to fall. The RBA left growth forecasts unchanged.

AUDUSD fell below the key $0.74 following the announcement.

The RBA expects underlying inflation to be between 1 to 2 per cent this year, rising to between 1.5 and 2.5 per cent in 2017. That is down from the 2 per cent originally envisaged for 2016.

Its official target range for headline inflation is between 2 and 3 per cent; the most recent data showed that headline inflation was 1.3 per cent year-on-year in the March quarter, down from 1.7 per cent in the final three months of 2015. Core inflation was running at annual pace of 1.5 per cent in the first three months of this year.

However, the RBA still expects economic growth between 2.5 and 3.5 per cent this year and between 3 and 4 per cent by 2018, it said in its quarterly statement on monetary policy, citing low interest rates and recent falls in unemployment.

Earlier this week, on Tuesday, the RBA held a policy meeting and decided to cut interest rates to a record low 1.75 per cent amid persistently low inflation. This triggered a drop in the aussie to tumble the most since 2011.

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