HSBC Australia and New Zealand chief economist Paul Bloxham said the RBA also appears to be comfortable with the current level of the Australian dollar.
Mr Bloxham said HSBC expects the RBA’s next cash rate move will be upwards, and predicts this could occur before the end of the year.
In a statement released to the public, Reserve Bank of Australia Governor Glenn Stevens said while growth in the global economy was slightly below trend in 2013, “there are reasonable prospects of a pick-up this year”.
“The United States economy, while affected by adverse weather, continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one,” said Mr Stevens.
Mr Stevens said Japan has experienced a significant pick-up in growth and China’s growth “remains generally in line with policymakers’ objectives, though it may have slowed a little in early 2014”.
In terms of Australia, economic growth was below trend in 2013, according to Mr Stevens.
“Recent information suggests slightly firmer consumer demand over the summer and foreshadows a solid expansion in housing construction,” he said.
“Some indicators of business conditions and confidence have improved from a year ago and exports are rising.”
Mr Stevens warned, however, that “resources sector investment spending is set to decline significantly and investment intentions in other sectors are only tentative as firms wait for more evidence of improved conditions before committing to expansion plans”.
He also said labour demand is still weak, which has caused the rate of unemployment to edge higher.
Growth in wages, he said, has also declined.
“With a lower Australian dollar and a strengthening domestic economy, inflation looks to have passed its trough in Australia, although the RBA is assuming that continued weakness in the labour market will drive ongoing subdued wage inflation and some moderation in CPI inflation,” said Mr Bloxham.
The RBA said if domestic costs remain contained, some moderation in the growth of prices for non-traded goods may occur over time, which should ensure inflation remains consistent with the target, even with lower levels of exchange rate.
“If the labour market improves in coming months, as we expect it may, disinflation from this source may turn out to be less pronounced than the RBA expects,” said Mr Bloxham.
