RBA Statement on Monetary Policy revises down growth and inflation forecasts (as expected)

Given the fact that the RBA cut the Cash Rate by 25bps earlier this week it will have come as no surprise to anyone that today’s release of the February Statement on Monetary Policy (SOMP) sees a revision down of growth and inflation forecasts. The table below details these revised forecasts along with the previous (Nov SOMP) forecasts for comparison.

Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17
GDP 2.5
(2.5)
2.25
(2-3)
2.25-3.25
(2.5-3.5)
2.75-3.75
(unch)
3-4
(2.75-4.25)
3-4.5
CPI 1.7
(1.75)
1.25
(1.5-2.5)
2-3
(2.5-3.5)
2.25-3.25
(2.5-3.5)
2.25-3.25
(2.5-3.5)
2.25-3.25
Core inflation 2.25
(2.25)
2.25
(2-3)
2-3
(2.25-3.25)
2-3
(2.25-3.25)
2-3
(2.25-3.25)
2-3

The RBA also includes a graph which demonstrates the confidence intervals around their central GDP growth forecasts. The RBA remain 90% confident that we will not be seeing a recession in Australia for at least a few more years.The SOMP states that “While the key forces shaping the outlook are much as they were at the time of the November Statement, the forecast for GDP growth has been revised a little lower in the near term. Notwithstanding the recent falls in oil prices, new information suggests that consumption growth and non-mining business investment are likely to pick up later than previously had been expected, and that LNG production is likely to ramp up a bit more gradually than earlier expected. Lower export prices are expected to dampen the growth of incomes  and activity. In time, however, the recent further depreciation of the exchange rate and lower interest rates are expected to provide support to demand. As a result, GDP growth is expected to be above trend in the latter part of the forecast period.

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Today’s SOMP also includes a graph showing the confidence levels around the RBA’s central forecast of the unemployment level. This demonstrates the Bank’s expectation that as “growth in economic activity is forecast to remain below trend in the near term, the unemployment rate is likely to rise a little further over coming quarters. It is expected to decline towards the latter part of the forecast period, once growth picks up to an above-trend pace.” The Bank comments on the high level of uncertainty with this projection and notes that this is not at all unusual given the highly uncertain nature of many of the macroeconomic factors that can (and almost certainly will) impact on employment levels.

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