RBA likely to publish small rise in underlying inflation forecasts

The Reserve Bank of Australia’s Friday’s statement on Monetary Policy (SoMP) is likely to underline that while the outlook of economic growth stays positive, inflation is expected to remain low, noted ANZ in a research report. The central bank’s economic outlook is expected to be quite similar to November’s statement, but with more positive views about the global outlook. The post-meeting statement from yesterday affirmed that the central bank sees the softness in the third quarter GDP as “largely reflecting temporary factors” will still projects the economic growth to come back to about 3 percent in the next couple of years.

Regarding inflation, the new forecasts were seen a “little changed”. The projections in the SoMP would be extended out to the middle of 2019 and the RBA is expected to publish a small rise in underlying inflation forecasts for Jun-19, said ANZ.

The projections are likely to assume market pricing for the cash rate, where the market has slight possibility of a rate rise priced in the next year, as compared with a pricing of about a 50 percent possibility of a rate cut during the November Statement on Monetary Policy.

“The currency assumption is likely to be broadly unchanged against the USD at USD0.77, but slightly higher on a TWI basis at 66.5 (previously 65). The oil assumption should be higher at about USD55/b (previously USD50/b)”, stated ANZ.

The RBA’s assessment of the major risks is expected to be greatly unchanged, with the addition of a further uncertainty about the global political and trade outlook. The Australian central bank is expected to keep being concerned about the extent of slack in Australia’s labor market, China’s economic outlook given the high debt levels and overcapacity, and the disinflationary impact of the supply coming on stream in the housing market in the next year or so, added ANZ.

“We continue to see rates on hold at 1.5 percent”, noted ANZ.

At 6:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was neutral at -45.2944, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 54.6389. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex