I'm not expecting any surprises from the Reserve Bank of Australia Statement today (due 0130GMT)

The main focus the market has on the Statement is for RBA forecasts (more on these below). But if there are comments on issues apart from these (there will be) I reckon the important things to watch for are already well known and Governor Lowe provided us with a good preview in the remarks yesterday:

That first link has his prepared remarks, these particularly of note (but check out the link for more):

  • Concerned about impact of sharp house price correction on household spending, economy
  • Higher the indebtedness the greater is the sensitivity of spending to shocks to income
  • When rate cycle turns, higher debt levels will likely make spending more responsive to higher rates than previously
  • Recent increase in household debt to income has made economy less resilient to future shocks
  • Over time we could expect interest rates to rise in Australia
  • Employment growth has been a bit stronger of late, forward looking indicators positive
  • Expect economic growth to pick up gradually, average around 3 pct or so over next few years

I bolded the ones where Lowe is trying very hard to get his message across, concern over high debt (and its impact on consumer spending and the thus the economy). I expect more along the same lines in the SoMP today.


Anyway, here is a bit of a preview of the SoMP from Westpac (any bolding, and mistakes of course, mine):

Our major interest will be in the growth and inflation forecasts along with some more colour to the risks.

  • Key growth forecasts in the February SoMP were: GDP growth in calendar 2017: 2.5%-3.5%; GDP growth in calendar 2018: 2.75%- 3.75%.
  • We believe the Bank will see growth prospects as unchanged since February although there may be a 'one off' adjustment for the impact of cyclone Debbie in the June quarter (some official estimates of a 0.25% 'hit' have been mentioned). Of more importance will be the 3.25% (mid- point) forecast for 2018.

Westpac then digress into their views for growth:

Westpac is surprised at the Bank's persistent optimism. We expect the housing construction cycle to have clearly 'rolled over' by then with the terms of trade also ... Other factors that are also likely to weigh on growth in 2018 are the impact on business and household balance sheets of high energy prices, and intensifying political uncertainty. A lower AUD will contribute a welcome offset (USD 0.65 'target' in 2018).

  • The IMF recently released upward revised growth forecasts for Australia - 3% in 2017 and 3% in 2018 (year average measures).
  • The 2017 forecast is higher than the RBA's year average forecast of 2.5% but we expect the Bank to hold its forecasts steady.
  • We do, however, expect that the Government will adopt a higher growth forecast in the May 9 Budget, raising the 2017-18 financial year number from 2.75% to 3%, in line with the IMF.

Back to the SoMP:

Inflation forecasts are also expected to be unchanged: current underlying inflation is running at 1.8% annual. RBA forecasts are 1.5-2.5% in both 2017 and 2018.

  • These forecasts are 0.5% below the target 2-3% but not sufficiently awry to demand a policy change, particularly since the forecast to June 2019 indicates a return to the 2-3% target band.

Underlying assumptions around the AUD are also unlikely to warrant any forecast changes with the February forecasts using USD 0.76 compared to the likely USD 0.75 in the May forecasts.

In the February SoMP the discussion on 'housing risks' centred on the downside: "history shows that sentiment can turn quickly."

  • Of course prices have continued to boom in the interim - we expect ongoing nervousness in the May SoMP emphasising the risks associated with a further intensification of macro prudential controls