March 6, 2018 / 9:42 PM / 4 months ago

Australia central bank gov sees "stronger" growth in 2018, rates steady

SYDNEY, March 7 (Reuters) - The head of Australia’s central bank said on Wednesday the country’s economy is expected to grow “stronger” in 2018 than in the past year, in a speech hours before official data that is likely to show growth decelerated last quarter.

With the economy “moving in the right direction and interest rates still quite low, it is likely that the next move in interest rates in Australia will be up, not down,” Reserve Bank of Australia (RBA) Governor Philip Lowe said.

The RBA held rates at a record low 1.50 percent for a 17th straight meeting on Tuesday as inflation still remains below its 2-3 percent target band and the jobless rate remains high despite a recent jobs boom.

The RBA sees only gradual progress in reducing unemployment and inflation. As a result, “the Board does not see a strong case for a near-term adjustment of monetary policy,” Lowe said in Sydney.

A Reuters poll of analysts last week showed economists expect gross domestic product (GDP) to have expanded by 0.6 percent on quarter and 2.5 percent on year in the December quarter.

However, recent soft indicators have prompted analysts to trim these expectations to rises of around 0.5 percent and 2.4 percent, respectively.

Lowe’s optimism on growth comes from the strength in the global economy and still very loose monetary policies. Particularly helping Australia is the steady increase in population which has climbed 16 percent since 2008.

“This growth, combined with low levels of investment, has started to put pressure on capacity utilisation,” Lowe said. “It is also relevant that businesses are reporting stronger business conditions than at any time since before the financial crisis.”

Lowe said there were significant shifts in business investments as more companies invest in intellectual property and information technology as opposed to plant, machinery and equipment.

As a result, the share of non-mining investment in the economy will be lower than it was in the past by 1-2 percentage points, Lowe said.

Meanwhile, the amount of investment in the resources sector, as a share of the country’s A$1.7 trillion economy, will be higher than it was before the decade-long mining investment boom.

“We are already seeing some evidence of this, with increased spending on ‘sustaining’ the capital stock being one of the factors behind the recent improvement in the Western Australian economy,” Lowe said. (Reporting by Swati Pandey Editing by Hugh Lawson)

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