Australia: Slowdown in growth, led by decline in private investment - ICICI Bank : Treasury Research

Review of the economic situation

Economic growth slowed in Q1 2013, led by decline in investment. Meanwhile, leading domestic economic indicators are largely mixed.

On the inflation front, though headline CPI inflation remained within RBA's target band of 2-3% since September 2012, inflationary expectations headed higher in July.

Monetary Policy View - RBA expected to remain on hold for the rest of 2013

The RBA reduced the policy rate by 25 bps to 2.5% in its August policy review. We expect the Central Bank to remain on status quo for the rest of this year as it is likely to wait and watch the impact of its recent rate cuts on the economy. Further, with the policy rate already at record lows, the RBA is likely to save some policy ammunition for the future.

Currency View - AUDUSD to trade in the band of 0.88-0.92 this year

Australian Dollar is likely to remain under pressure amidst subdued domestic growth and cautious global sentiment owing to speculation of early tapering of quantitative easing by the US Fed. However, expectations of no further action on the policy front this year coupled with better than expected recent Chinese data prints are likely to provide some support and limit the losses. Hence the Australian Dollar is expected to trade ranged in the band of 0.88-0.92 this year.

Source : Equity Bulls

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