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Economy positive, could be stronger: RBA

AAP logoAAP 5/08/2016 By Marty Silk

The Reserve Bank of Australia says it cut rates for the third time this year to give the economy another kick along and boost inflation, which is facing a number of risks.

The RBA slashed rates to an all-time low of 1.50 per cent at it's August board meeting on Tuesday, citing weak inflation.

Consumer prices are forecast to rise by a maximum of 1.5 per cent this year, below the RBA's two to three per cent target band.

On Friday, the RBA said in its August Statement on Monetary Policy that recent economic data showed little improvement in the outlook on growth and employment since its May statement.

The Reserve Bank hinted that the economy could be doing better in the current circumstances.

"While the prospects for growth in economic activity are positive, there is room for even stronger growth," the central bank said.

Meanwhile the RBA warned that inflation faced a number of uncertainties in the near-to-medium term.

The RBA said while strong growth in housing supply had thus far been absorbed by population growth, there was a risk an oversupply could slow down the housing sector.

"If the housing market were to weaken substantially, consumption could be lower than expected due to lower growth in household wealth," the statement said.

"Consumer price inflation could also be affected, as housing costs comprise a significant share of the CPI basket."

The RBA said there was also considerable uncertainty about wage growth, another key driver of inflation, because many jobs created recently have been either part-time, or full-time but with fewer hours.

The bank said that suggests there could be more spare capacity in the labour market, which would allow employers to pay workers less to keep them satisfied.

But lower wages would also take upward pressure off consumer prices, keeping inflation low.

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