RBA Statement: Policy easing based on lower inflation outlook, cooling in housing

Author: Eamonn Sheridan | Category: Central Banks

From the Reserve Bank of Australia's quarterly  Statement on Monetary Policy

Headlines via Reuters:

  • Policy easing based on lower inflation outlook, cooling in housing
  • Cuts inflation forecasts, GDP forecasts mostly unchanged. Year average for 2016 revised up 0.5 ppt
  • Underlying inflation seen at 1-2 pct end 2016 (pvs 2-3 pct), 1.5-2.5 pct out to mid-2018 (pvs 2-3 pct)
  • GDP seen at 2.5-3.5 pct end 2016 out to end 2017, 3-4 pct to mid-2018
  • CPI data showed broad-based weakness in domestic cost pressures, slow growth in labour costs
  • Outlook for wage growth revised lower, to stay low for longer and then rise very gradually
  • RBA also cites retail competition, softer inflation in rental & home building, falling fuel & utility costs
  • Inflation expectations in Australia below average, but have not declined as much as elsewhere
  • Says outlook for domestic cost pressures, impact of a$ on inflation are key uncertainties
  • Unemployment seen around current rate to mid-2017, before declining gradually
  • Q1 GDP  growth seen around same moderate pace as previous quarter
  • Household consumption to be a bit above average, net exports will continue to add to GDP
  • Outlook assumes recent rises in bulk commodity prices are not sustained, lng prices seen higher
  • Most of decline in mining investment to be over by end 2016, non-mining still subdued
  • Ootlook for growth in Australia's major trading partners revised a little lower
That's quite a big cut to the inflation outlook (to 1 - 2 percent from the previous 2 - 3%, (2 - 3% is the target band.)) RBA citing subdued wage growth, saying workers moving from higher paying mining jobs to other employment.
On the AUD, the bank notes it's a big source of uncertainty.

Meanwhile, AUD/USD has dropped a quick 40-odd points. I noted earlier the stops below 0.7440 and then the bids coming back in again around 0.7400/10/15. For the Kiwi - the stops below 0.6870 - there are more under 50.

Given the tone of this document from the RBA today its looking like the AUD is going to help those bidders get filled in for now.

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