The RBA quarterly Statement of Monetary Policy is due on Friday (February 7) at 11.30am local time (0030GMT).

Take note that although the statement is not due for release until Friday, the RBA research, forecasts and subsequent conclusions were available to the RBA board for their meeting yesterday (Tuesday 4 February ) and played a significant role in their decision and accompanying statement.

What will the Statement on Friday say?

  • An upgrade to both growth and inflation projections compared to the November Statement
  • The upgrades to growth and inflation projections have been largely prompted by the fall in the Australian dollar since then
  • i.e Growth projections have been revised up due to the stimulatory effect on the economy of the falling currency
  • i.e Inflation forecasts revised higher due to currency weakness (in addition to the trimmed mean inflation for Q4 that came in at a hotter than expected 0.9% (& y/y at 2.6% in the top half of the target 2 – 3% band)
  • With both growth and inflation forecasts higher, it was no longer possible to stay consistent with an (admittedly mild) easing bias … hence to move to neutral on Tuesday
  • The statement will note both weak labor demand and continued expectation of a decline in investments in resources extractions (mining) development as offsets to the growth expectations
  • The RBA will emphasise a desire for the currency to remain roughly where is. Its at a Goldilocks point at the moment (I don’t expect them to use that term
    ) – further falls risks higher inflation, gains from here is a risk to growth

More on AUD here: AUD losing a bit of steam this morning – some feedback from the desks

and here: Watch the Australian current account balance for next big AUD trend