SYDNEY, Feb 8 (More Bank) – The brutal reversal of
Australian real estate market has become an uncertainty
"major," warned Friday the Bank of Australia, while
degrading its growth and inflation forecasts, a sign that
its monetary policy could remain accommodative yet another
long time.
    In its monetary policy statement, the bank
Australian Central Bank (Reserve Bank of Australia, RBA)
underlying inflation will remain below its target
2-3% until mid-2021, due to very
slow wages.
    Perspectives on consumption remain a source
significant uncertainty, which led the RBA to review its
economic growth forecast at 3.0% this year and 2.7%
by 2021.
    In November, the central bank was still forecasting 3.3%
growth this year and 3.0% for next year.
    The lowering of these forecasts has brought down the dollar
Australian AUD = at a five-week low while the
contract on the three-year government bond YTTc1 climbed to its
highest level since November 2016.
    Futures rate contracts now suggest a
25 basis points decrease in the interest rate, to 1.25%, this
year and a small probability of a further decline the year
    "The degradation in the statement released today is
more important than we anticipated, "says Tom
Kennedy, analyst at JPMorgan.
    "I think it's probably the real estate context that
shifted from balanced optimism to a more
    The RBA has left interest rates unchanged at 1.5% since
August 2016 and repeated since the next move would be a
    But on Wednesday, the governor of the RBA surprised
investors by breaking with its bullish bias and opening
the door to a rate cut, taking note of the rise in
risks surrounding economic growth.
    On Friday, Philip Lowe again ruled that progress
on reducing unemployment and raising
inflation towards the objective could "reasonably be
expected. "
    "If this scenario were to be realized, a rise in
of interest would become appropriate at some point, "he said.
    However, "should there be a continuous increase in
unemployment and no further advance of inflation towards the goal it
would then be appropriate to lower the interest rate. "
    The probability that one of these two hypotheses is realized is
"more balanced" than previously anticipated, added Philip Lowe,
adding that the RBA board did not see any incentives
to change short-term interest rates.
    The ongoing correction of the real estate market, which comes
against the backdrop of record household debt, strengthened
uncertainties about growth prospects, which led to
the RBA to adopt a more cautious tone on its monetary policy.
    Real estate prices in Australia have risen sharply
50% over the last five years until September 2017. They
have since declined by 8% due to higher regulation
strict on loans and an overabundant supply.
    "The consequences of the correction of the real estate market for
the economy in general depends on how households
react, and in particular how they take into account the
previous increases in their spending decisions ",
said RBA governor Philip Lowe.
    "The outlook on the growth of consumption
is based on a rebound in the growth of household incomes,
sufficient to offset the decline in
households in response to falling real estate prices ".
    The rise in wages in Australia has slightly rebounded by
ratio down to 1.9%, but it should remain close to
current levels for the years under review.
    Philip Lowe keeps hope of a rebound in consumption
thanks to the recent strength of the labor market, but its
forecasts point to moderate growth in
consumption, around 2.5% to 2.7% by 2021, compared to one
between 4% and 6% before the global financial crisis.

 (Swati Pandey, Blandine Henault for French service, edited
by Patrick Vignal)