Australian dollar buffeted by IMF growth warning

The dollar was buffeted today by warnings the economy would grow at a slower pace unless aggressive reforms were undertaken.

The Australian dollar was buffeted today by warnings that the Australian economy would grow at a slower pace in future unless aggressive reforms were undertaken.

At 5:15pm, the Australian dollar was trading at US77.33c, compared with US77.12c late yesterday. It moved in range of US77.15c to US77.58c in Asian trading hours.

“Over the medium-term, and without reform, growth is likely to converge to a slower potential rate,” the International Monetary Fund said at the conclusion of a two-week visit to Australia.

“We see Australia’s outperformance ending,” said James Daniel, the IMF’s mission chief to Australia.

This outcome could be avoided if Australia won back its earlier reform momentum, he said.

Australians should plan for significantly slower growth rates around 2.5 per cent year-over-year in the medium term, rather than the 3 per cent to 4 per cent rates commonly experienced over the last two decades, the IMF said in a report.

Specifically, the IMF said changes were needed in the country’s tax system, while it urged spending on infrastructure to lift the country’s productive capacity.

Australia’s central bank should stand ready to lower interest rates further if the economy faltered, the IMF said.

Despite the bleak outlook offered by the IMF, some said it would be a mistake to get too bearish on the currency.

Elias Haddad, currency strategist at CBA, said the Australian dollar was likely to remain range bound for now.

“There are signs that further RBA rate cuts may not be required, supporting the Australian dollar,” Mr Haddad said.

“Australia’s unemployment rate has trended lower over the past six months, employment growth has picked up and household consumption has been stronger than expected over the past few quarters,” he added.