This is a brief summary of Westpac's response to the November 2015 Reserve Bank of Australia Statement on Monetary Policy

(Bill Evans, WPAC Chief Economist)

In brief (and any bolding is mine):

Overall, the Bank's growth forecasts are little changed since the August SoMP

  • RBA maintained its key forecast that growth in the economy would be 3.00% in the year to December 2016
  • The growth forecast for the year to December 2015 has been lowered to 2.25% from 2.50% in the August SoMP
  • RBA has lowered its forecast for growth to the year ending December 2017, from 3.75% to 3.50% ... not a downgrade on the outlook for domestic demand, but simply reflects a revision to the expected contribution to net exports from LNG

Changes to the inflation outlook

  • Underlying inflation to December 2015 has been lowered from 2.50% to 2.00%
  • Underlying inflation through the year ended June 2016 is also forecast at 2.00%
  • Underlying inflation is expected to print 2.50% in the year to December 2016 - back to the middle of the target range ... that forecast is maintained for the year to December 2017

Employment

  • The Bank notes "employment growth is expected to be a bit stronger than had been forecast earlier"
  • Leading indicators around the business surveys, job advertisements and vacancies are pointing to an uptrend in employment. On the other hand, there is no marked upgrading of the outlook for the unemployment rate
  • Lift in employment growth is expected to be offset by a more than expected increase in labour supply, due to the increase in the participation rate
  • Overall, a marginally more positive assessment of the labour market since August, and significantly more positive than seen in May, when the Bank expected that the unemployment rate would continue to rise

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Westpac's outlook for RBA monetary policy:

  • We continue to expect that rates will remain on hold over the course of 2016
  • The Bank's forecasts in this statement are consistent with it expecting that to be the outcome as well. However, the fact that it is using a "rate cut profile" for its forecasts and appears to expect that the December quarter underlying inflation print will be a soft circa 0.40-0.50% signals that the risks to our outlook are to the downside
  • The key appears to be an ongoing improvement in employment growth which will boost consumer confidence and lift the pace of household spending. Our forecasts for household spending and GDP growth are slightly more modest than indicated in the SoMP, but are still consistent with steady rates
  • Surprises for the Bank might always be a further substantial deterioration in the terms of trade, associated with a weaker than expected world environment which would threaten incomes, and the all important profile for household spending and employment.
  • The really key events in the lead up to the February Board meeting will be the Q3 national accounts, printing on December 2, and the December quarter inflation report printing on January 27. Further, any major shocks to the global economy which significantly lower our terms of trade will also be very important.
  • As discussed however, the Bank will need to assess all of these factors as pointing to a downward revision to growth in 2016, from its current 3.00% to a below trend 2.50%, to trigger lower rates.