- The Reserve Bank of Australia quarterly Statement on Monetary Policy is out and dovish.
- The Reserve Bank of Australia downbeat on projections.
The Reserve Bank of Australia has released its quarterly Statement on Monetary Policy. This follows a recent hold in interest rates and a brief statement that indicated fairly modest changes compared to May. “The RBA’s “central scenario is for the Australian economy to grow by around 2 ½ per cent over 2019 and 2 ¾ per cent over 2020.” Inflation is expected to take longer to return to target, “a little under 2 per cent over 2020 and a little above 2 per cent over 2021,” analysts at Westpac explained
Key points from the Statement on Monetary Policy:
“The Australian economy has been navigating a period of slow growth, with subdued growth in household income weighing on consumption spending. In contrast, employment growth has been strong. The response of labour supply has been even stronger, taking the participation rate to a record level. Despite the strong employment growth, the unemployment rate has increased to 5.2 per cent, where it has remained for three months. Domestic inflation pressures remain subdued. Housing-related inflation has been particularly soft lately, compounding the ongoing effects of spare capacity in the labour market and the resulting slow growth in labour costs.”
- Sees Dec 2019 GDP at 2.5%, Dec 2020 at 2.75% and June 2021 at 3.0%.
- Sees Dec 2019 at 1.5%, Dec 2020 at 1.75%, and Dec 2021 at 2.0%.
- Board prepared to ease policy if needed, watching labour market closely.
- Reasonable to expect extended period of low interest rates.
- Near-term risks to economic growth are more to the downside.
- RBA sees underlying inflation at 1.5% Dec 2019, 1.75% Dec 2020, 2% for both June 2021 and Dec 2021.
Full statement
About the SMP
The RBA Monetary Policy Statement released by the Reserve bank of Australia reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. It is considered as a clear guide to the future RBA interest rate policy. Any changes in this report affect the AUD volatility. If the RBA statement shows a hawkish outlook, that is seen as positive (or bullish) for the AUD, while a dovish outlook is seen as negatvie (or bearish).
Earlier, RBA governor Lowe was appearing before the House of Representatives’ Standing Committee on Economics in Canberra, delivering a prepared text and along with colleagues, answering politicians’ questions for about 3 hours:
- Prepared to use unconventional policy if it’s warranted.
- It is unlikely but possible that we head to the lower bound; hope to avoid doing so.
- RBA Governor Lowe: depreciation in the Australian Dollar is helping the economy.
Earlier comments:
- We are prepared to cut rates further to meet our inflation and employment goals.
- Having cut rates twice in quick succession. we thought it was appropriate to wait and asses developments.
- Inflation still expected to pick up, but the date at which it is expected to be back at 2% has been pushed out again.
- Over 2020, inflation is forecast to be a little under 2% and over 2021 it is expected to be a little above 2%.
- Australian economy to grow 2.5% this year; downward revision reflects weak consumption growth.
- There are signs the economy has reached a gentle turning point.
- Inflation will be below target band for some time.
- Probable we will have spare capacity in the labour market for some time yet.
- Reasonable to expect an extended period of low rates.
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