In its latest quarterly Statement on Monetary Policy, the Reserve Bank of Australia (RBA) bumped its near-term forecast for economic growth, while lowering its estimate for growth in 2015.

For the 12-month period ending in June, the RBA increased its projection for gross domestic product (GDP) growth to 3 percent from 2.75 percent. And for the year ending in December, it specified growth of 2.75 percent, which is the midpoint of its previously forecasted range of 2.25 percent to 3.25 percent, and therefore essentially status quo.

But the central bank shaved a quarter point from both the upper and lower thresholds of its projected ranges for each of the 12-month periods ending in June and December 2015. The new forecast ranges call for GDP growth of 2.25 percent to 3.25 percent for the year ending in June 2015 and 2.75 percent and 3.75 percent for the year ending in December 2015.

In making these projections, the RBA assumed an average exchange rate for the Australian dollar of USD0.93, up 4.5 percent from last quarter, and a Brent crude oil price of USD105, up from USD104 in February, among other assumptions.

These revisions reflect the rise in the exchange rate in recent months, which the central bank says will restrain exports and boost imports over the next two years, along with an improved outlook for domestic consumption and dwelling investment over the coming year. The RBA expects the record levels of exports that have helped support the resource sector will ease in the quarters ahead.

The Australian dollar currently trades just below USD0.94, up nearly 8 percent from its low in late January, though down about 14.8 percent from the cycle’s high in mid-2011. Analysts forecast the aussie will trade at an average of USD0.89 for the remainder of 2014, before sliding to USD0.86 in 2015, a level at which the currency is expected to remain through at least 2018.

Private-sector economists currently forecast Australia’s economy to grow 2.8 percent in 2014 and 2.9 percent in 2015. In 2016, Australia’s economy is expected to expand at a rate of 3.4 percent, which means that after three calendar years of below-trend growth, GDP will finally be growing near the country’s long-term trend of 3.5 percent annualized.

The RBA’s near-term optimism is underpinned by strong growth in resource exports, as well as rising production from mining projects coming on line following the sector’s boom in investment. Consumer spending has also been buoyed by record-low interest rates and rising real estate values.

Over the longer term, however, the decline in mining investment is expected to gain momentum as larger projects commence operation and add to the glut of production. Meanwhile, despite promising signs in the housing and retail spaces, the non-mining sectors have yet to take over leadership of the country’s economy.

And while the exchange rate has depreciated considerably, as noted above, the central bank characterizes its current level as relatively high. Indeed, as Westpac Chief Economist Bill Evans observes, the aussie’s ascent since late January appears to be one of the main factors dampening the bank’s medium- to longer-term outlook.

Still, the bank expects its high level of monetary stimulus will eventually flow through to consumer demand, boosting business investment and employment. And longer term, the RBA sees liquefied natural gas (LNG) exports adding significantly to the country’s economic growth, starting around 2016.

Until then, the central bank says the significant headwinds facing the economy continue to merit an extremely accommodative monetary policy. As such, the RBA will likely keep interest rates at record lows for some time.

Portfolio Update

Aggressive Holding GrainCorp Ltd (ASX: GNC, OTC: GRCLF) reported fiscal first-half 2014 (ended March 31) adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) of AUD166 million, a 26.9 percent decline from a year ago, and NPAT (net profit after tax) before significant items of AUD61 million, down 44 percent from a year ago. Revenue fell 13 percent, to AUD2.1 billion.

Among the challenges the grain handler faced were lower crop volumes that reduced business for its Storage & Logistics division, as well as continuing pressure on refining volumes in its Oils segment.

Hot, dry weather across Australia’s east coast, the region which GrainCorp’s operations dominate, caused wheat production to fall to a four-year low of 6.6 million tonnes, according to the Australian Bureau of Agriculture and Resource Economics and Sciences.

And while the current season has fared better thus far, there are concerns that weather patterns could trigger more droughts in the region later this year.

Nevertheless, management reaffirmed its full-year earnings guidance, with EBITDA forecast to range from AUD275 million to AUD315 million and underlying NPAT of AUD80 million to AUD100 million.

The company’s search for a new CEO remains underway, with an announcement expected in the middle of the calendar year.

The board declared an interim dividend of AUD0.15 per share, which represents a payout ratio of 56 percent of NPAT before significant items. The company’s policy is to pay 40 percent to 60 percent of NPAT through the cycle.

GrainCorp’s results fell short of analyst expectations by 5.3 percent for earnings per share, while exceeding revenue estimates by a razor-thin margin of 0.02 percent.

Thus far, only one firm has weighed in on GrainCorp’s earnings, with Macquarie reiterating its “underperform” rating, which is equivalent to a “sell,” while maintaining its 12-month target price of AUD7.61.

The mix of sentiment could change in the coming days, as analysts process GrainCorp’s results, but for now it’s largely neutral, at two “buys,” nine “holds,” and four “sells.” The consensus 12-month target price is AUD8.18, which is actually 8.4 percent below the current share price.

Although analysts are still in the midst of updating their models, for benchmarking purposes it may be worthwhile to know what their forecasts were for the full fiscal year prior to the earnings release. Analysts expected GrainCorp’s fiscal-2014 adjusted earnings per share to drop 43 percent year over year, to AUD0.44, on a revenue decline of 19 percent, to AUD3.62 billion.

For fiscal 2015, analysts projected a partial rebound in earnings per share of 31 percent, to AUD0.58, with revenue up 10 percent, to AUD3.98 billion.

Following the Australian government’s spurning of Archer Daniels Midland Co’s (NYSE: ADM) AUD3.2 billion bid to acquire the company, GrainCorp’s stock, which had been trading around the offer price of AUD12.20 per share, fell sharply and is now near the same level at which it traded in late 2012 just prior to ADM’s offer.

Even so, analysts believe the current share price includes a takeover premium, as most investors remain confident the firm will ultimately be acquired.

As we’ve noted previously, ADM still owns 19.85 percent of GrainCorp’s shares outstanding. And the government has encouraged the company to up its stake to 25 percent, perhaps with an eye toward approving a subsequent offer at some point in the future.

ADM’s management, which is keen on increasing the company’s exposure to fast-growing Asian markets, has said it remains committed to Australia, which suggests another bid could eventually be in the offing.

Also of note, over the past several months, specialist fund manager Ellerston Capital has rebuilt its stake in GrainCorp to 7.61 percent of shares outstanding and is now the company’s third-largest shareholder after ADM and Goldman Sachs.

Prior to ADM’s bid, Ellerston was the company’s single-largest shareholder before selling a portion of its position to ADM and then liquidating the remainder of its shares sometime thereafter. Ellerston’s latest stake is actually 1.1 percentage points higher than its previous position.

With a net yield of 5.1 percent, GrainCorp is a buy below USD10.