The Reserve Bank has again lowered its outlook for the Australian economy, but not offered any clue as to whether it will cut interest rates further in response.
The RBA's latest quarterly forecasts economic growth of around 2.5 per cent for the current financial year, down from a November forecast of 2.75 per cent.
Likewise the forecast for growth in the 2013 calendar year has been cut 0.25 percentage points to 2-3 per cent, and the bank's inflation forecasts for the year ended June 2013 have been trimmed by the same amount.
"The outlook for the Australian economy is slightly weaker than it appeared at the time of the November Statement," the bank's forecasters noted in the Statement.
largely reflect information accumulating late last year suggesting that the outlook for mining and non-mining investment was a little weaker than had previously been thought." The bank cites the peak of the mining investment boom this year, the push for tighter government budgets, the persistently high Australian dollar, and little sign of a pick-up in non-mining investment as reasons why it has lowered its forecasts.
However, it retains a mild optimism that an improvement in housing markets, observed in both building approvals and home price data over the second half of last year, may help support economic activity.
The Reserve has taken notice of the stunning 86 per cent rise in iron ore prices since a September trough below $US87 a tonne, saying this should provide a boost to national income over the first part of 2013.
However, the RBA also notes that rises in steel prices have not kept pace with rising iron ore prices, meaning that the latest run-up in the Chinese spot price to more than $US150 a tonne is unlikely to be sustained, and that prices are likely to fall back to levels around $US120 a tonne, where high-cost producers in China start becoming unprofitable.
It also observes that coal prices have failed to recover all their losses over the past year and remain around 20 per cent down on last February's levels.
A fall that is likely to be locked in for much of Australia's exports of coal for power generation, where many of the annual contracts tend to be renegotiated in March.
However, despite this weaker economic outlook, the bank does not seem to be in a rush to cut rates further.
Several times in the 68-page document it notes how low the current cash rate and borrowing rates are: it says the average interest rate on outstanding housing loans is now about 25 basis points above its 2009 low, and borrowing rates are between 95-140 basis points below average.
It also noted that many of the signs of weakness that prompted it to lower its economic forecasts were apparent before the December board meeting, where it cut the cash rate by 25 basis points to 3 per cent, a record low in the inflation targeting era.
In conclusion, the RBA repeated its message that it had already done a lot of easing, which seemed to be having some positive effects and would have more as time went on, but that it stands ready to cut again if economic data such as employment deteriorate more than expected.