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The Reserve Bank of Australia has released an updated Australian growth forecast in the quarterly Statement on Monetary Policy.

The publication also provides a deeper assessment of risks.

Statement on MP

”Australia’s central bank on Friday nudged up its forecasts for near-term economic activity but warned that a drastic downturn in population growth meant the economy would be “noticeably smaller” than assumed pre-pandemic,” Reuters wrote.

”In its 89-page statement of monetary policy, the Reserve Bank of Australia (RBA) said the recovery was underway as all of the country opened up from coronavirus lockdowns, but the path ahead would be rocky and uncertain.”

”Unemployment was set to stay high and so depress both wages and inflation, leading the central bank to cut interest rates to a record low of 0.1% earlier this week.”

”The bank also dived into quantitative easing for the first time, pledging to buy A$100 billion in government bonds over the next six months with the aim of lowering borrowing costs.”

”The bank’s policy-making Board emphasised it was not contemplating cutting rates any further as it judged there was little to gain from moving to negative rates.”

”Yet it did commit to not raising rates until inflation was back in its 2-3% target band, something not expected for at least three more years.”

“If the circumstances require, the Board is prepared to do more and undertake additional purchases,” the RBA said.

”The RBA now sees annual economic growth of -4% in the December quarter, compared to a previous forecast of -6%.”

”Unemployment was expected to peak around 8%, down from its prior forecast of 10%, but decline only slowly from there to around 6% by the end of 2022.” 

”However, it expected Australia’s international borders would remain shut until the end of 2021, cutting off migration which had been the single largest driver of population growth.”

”Annual population growth was seen collapsing to just 0.2% in the 2020/2021 fiscal year and 0.4% in 2021/22, down from 1.6% or more in previous years.”

“This is the slowest rate of population growth since the First World War,” the RBA noted, and a material challenge to the longer-term outlook.

“Overall, the economy is expected to be noticeably smaller at the end of the forecast period than anticipated prior to the pandemic.”

AUD/USD update

AUD is pressured on the statements.

More to come…

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 negative (or bearish).