ICYMI, earlier responses I've posted:
This now, via Capital Economics (out of interest, compare HSBC's recap with this one ... HSBC consistently tend to be more toward the optimistic while Cap Eco the pessimistic).
(in summary) ...
retained its neutral outlook for interest rates
- but it appears that in the Statement on Monetary Policy due to be published on Friday it will maintain its near-perfect projections for the economy next year of a rise in GDP growth to 3.0% and an increase in underlying inflation above 2.0%
RBA's optimism towards the global economy is justified
- we agree that the outlook for business investment and infrastructure spending are all improving
- highlighted the strength of the labour market
- revised down its forecasts so that the unemployment rate is now expected to "decline gradually" from 5.5%
But the RBA is too optimistic on consumption and inflation
- It noted that "one uncertainty is the outlook for household consumption" and that underlying inflation "is likely to remain low for some time". But we don't think it went far enough given the further slump in retail sales growth in September
- the surge in jobs growth has not offset the downward pressure on household income from record low wage growth, rapidly rising utility prices and the burden of high debt
And the new spending weights that the ABS will use to calculate CPI inflation from the fourth quarter make the RBA's forecast that underlying inflation will rise above 2.0% next year even more challenging
- it's significant if it means that underlying inflation stays below the 2-3% target range until 2020 as we expect
we don't think conditions will warrant higher interest rates until late in 2019
- Of course, the RBA is willing to accept low inflation if it helps reduce the threat to the financial system from high household debt and housing
- That's why further rate cuts are unlikely
- But equally, the comments that "credit standards have been tightened in a way that has reduced the risk profile of borrowers" and that "housing conditions have eased further in Sydney" mean that the need to raise rates to take heat out of housing has diminished
- And high debt means the RBA is concerned that raising rates would push some households over the edge
Overall, subdued GDP growth and below-target inflation will probably mean the RBA bucks the recent global trend of a shift towards tighter policy
- This divergence in monetary policy could contribute to the Australian dollar weakening from US$0.77 now to around US$0.70 next year.