The RBA tweaked its language on inflation and added a new passage to its forward guidance today
On inflation, we can see that the RBA is now growing less confident about seeing price pressures move back up to its between 2% and 3% target band.
In July:
"Inflation pressures remain subdued across much of the economy. Inflation is still, however, anticipated to pick up, and will be boosted in the June quarter by increases in petrol prices. The central scenario remains for underlying inflation to be around 2 per cent in 2020 and a little higher after that."
In August:
"The recent inflation data were broadly as expected and confirmed that inflation pressures remain subdued across much of the economy. Over the year to the June quarter, inflation was 1.6 per cent in both headline and underlying terms. The central scenario remains for inflation to increase gradually, but it is likely to take longer than earlier expected for inflation to return to 2 per cent. In both headline and underlying terms, inflation is expected to be a little under 2 per cent over 2020 and a little above 2 per cent over 2021."
Meanwhile, they also added this passage to the forward guidance on its cash rate:
"It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target."
On the balance of things, it is a slightly more dovish tilt but as mentioned earlier, the key item is still the "if needed" message and that remains in place. As such, all this does is reaffirm that the central bank is still looking to cut rates "if needed" and suggests that market pricing of one around Q4 is not exactly wrong for the time being.
