The Reserve Bank of Australia Statement on Monetary Policy (SoMP) is due Friday at 11.30am Sydney time (0130GMT)

Previews from ANZ & NAB:

ANZ with a comprehensive preview:

  • We expect the RBA to remain relatively upbeat in next Friday's Statement on Monetary Policy (SoMP), highlighting that while the growth outlook remains positive, there is still some spare capacity in the labour market and inflation is likely to pick up only gradually.
  • Broadly speaking, we expect the RBA's economic outlook to be very similar to that contained in the May statement, although with perhaps more confidence that the underlying forecasts will eventuate.
  • There is likely to be more optimism around the global outlook, with Governor Lowe highlighting in his speech earlier this week that "forecasts of future growth are being revised up, not down."
  • The outlook for public demand is also likely to be revised higher given the solid spending forecasts outlined in the combined federal and state budgets. Offsetting this, however, will be the impact of the higher exchange rate, with the trade weighted index up nearly 6% over the past three months.
  • In terms of the GDP forecasts, the near term estimates are likely to be revised down on the back of the weak first quarter. Further out, we expect to see a small downward revision to the growth numbers for end-18 and end-19 to 21⁄2-31⁄2%, as a result of the higher exchange rate. This revision would also be consistent with the removal from the post-meeting statement earlier this month of the reference to growth accelerating to more than 3% over the next couple of years. It is possible, however, that offsets in the form of fiscal policy and the global outlook will see the RBA retain its 23⁄4-33⁄4% outlook for 2018/19.

The RBA will clearly be more upbeat about the labour market. Since the last SoMP, the ABS has reported an increase of more than 100k jobs, with full-time jobs up 111k, and a reduction in the unemployment rate from5.9% to 5.6%.

  • That said, as Lowe noted this week, "notwithstanding these outcomes, there are other labour market developments that are causing concern." He was largely referring to the still elevated level of underemployment, which has only just nudged down from a record high in Q1. This stubbornly high level of underemployment is contributing to the very low rate of wage growth and hence hindering the recovery in inflation.
  • In terms of unemployment, we think it likely that the forecast will remain at 5-6% until Jun-2019, with a tick down in Dec-2019, although there is some downside risk here given the lower starting point.

For inflation, we expect that the RBA will leave the forecasts unchanged.

  • The 0.5% rise in underlying inflation in Q2 was consistent with the numbers implied in the May SoMP. And, while the higher exchange rate will provide some downside bias, we do not see this as large enough to tick the forecasts down, particularly given the clear upward trend now evident in the quarterly numbers.
  • For headline inflation, although Q2 was weaker than the Bank's implied forecasts, the expected sharp rise in electricity prices in Q3 will provide some offset.
  • We expect that there will continue to be a wedge between the mid-point of the RBA's underlying inflation forecast and the forecast in the published chart (which has trimmed mean inflation going only to 2.1% by mid-2019); with the RBA seemingly eager to signal an eventual move back into the 2-3% target band.


  • ... Friday's Statement on Monetary Policy that will be under the spotlight.
  • The SoMP, with its refreshed outlook is unlikely to reveal too much change in their formal growth and inflation forecasts.
  • The week after, Governor Lowe testifies before the House Economics Committee and that will provide for extensive questioning on the economy, the labour market, inflation, and the higher level of the Australian dollar, areas he's been quite circumspect on recently.