The Reserve Bank of Australia cut their growth forecast for the economy this year, down from a range of 2.5-3.5% to a mere 2.0-3.0% and similar negative revisions were seen in their 2018 forecasts. Silvana Tenreyro, who replaced Forbes is most likely to join the doves for now.
The benchmark rate had been stable at 0.5% from March 2009 to August 2016, when the Monetary Policy Committee made a decision to reduce it by 25 basis points, in the wake of dire survey data following the Brexit vote. However, the 2018 earnings growth forecast was cut to 3% from 3.5% and 2019's to 3.25% from 3.75%.
Given weak productivity, the BOE still sees economic growth being enough to generate domestic inflation pressure and close the UK's output gap within three years. Bank chief economist Andy Haldane surprised onlookers by voting to keep the current rate, despite speculation he may have been in favour of a rise.
Speaking at the Bank, Carney warned activity could slow further if trade becomes more hard after Brexit with reduced access to the customs union and the Single Market.
"The MPC have kept the window open for an earlier than expected interest rate hike".
The MPC's next interest rate vote is not due until November.
In a separate announcement on Thursday, the BOE unveiled its inflation and GDP forecasts. Chancellor Philip Hammond has agreed to underwrite an additional £15bn of lending to banks through the Term Funding Scheme to meet higher-than-expected demand, which has been boosted by stronger-than-anticipated economic growth. He oversaw the ministry's pre-referendum forecasts about Brexit which warned of a hit to the economy from a Leave vote.
Prior to June's inflation reading of 2.6%, there had been growing clamour for a rate rise as a Brexit-fuelled increase in the cost of living ramps up pressure on hard-pressed households.
Mr Broadbent said the Brexit vote had caused inflation to march higher and there had to be a "trade off between stabilising inflation and keeping the economy going". We expect inflation to rise by more than the central bank is now predicting, peaking at 3.4 per cent this year.
"Low interest rates coupled with rising house prices have led to borrowers struggling to save deposits, and instead many are having to borrow larger amounts of money to get onto the housing ladder". While the rate decision itself wasn't particularly surprising, the Bank struck a relatively relaxed tone with growth forecasts revised moderately lower and inflation projections still looking relatively benign.
Uncertainty about the economic prospects as Brexit negotiations unfold was a major reason. Hence, to reach its inflation target, the Bank uses Monetary Policy such as adjustment of interest rates in order to meet the target.