Weekend Economist: Fragile China

Despite the fact that there has been little change in the RBA’s forecasts there are some interesting comments on the Chinese housing market.

As we expected, the Reserve Bank made minimal changes to their growth and inflation forecasts in the November statement on monetary policy (SoMP). They retained the call that growth to December 2014 would be 2½ per cent; to December 2015 would be 2½-3½ per cent; and to December 2016 2¾-3¾ per cent. On the inflation front underlying inflation is still forecast at 2¼ per cent to December 2014 and 2¼-3¼ per cent to December 2015. There has been a modest lift in the inflation forecast to December 2016 from 2-3 per cent in August to 2¼-3¼ per cent in this November SoMP. The RBA attributes that slightly higher inflation forecast to the lower Australian dollar which is used in the November forecasts. Specifically, the forecasts are based on an Australian dollar trade-weighted index of 68 and US dollar 0.86. That compares with TWI 72 and USD 0.93 in August. The key exchange rate for the forecasts is the TWI which is assessed as 4½ per cent lower than in August. 

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