RBA likely to lower its growth forecast for 2016

The minutes of the monetary policy meeting of the Reserve Bank Board for October provided no real encouragement for markets that a rate adjustment is imminent. 

Firstly there was a distinctly more upbeat tone around the outlook for the labour market with conditions being described as having "strengthened further over recent months" and "somewhat better than had been expected earlier in the year". It is always important when a central bank compares actual performance with their earlier expectations. 

Secondly, there appears to be a degree of comfort around the emerging slowdown in the housing market. In particular, whereas in the September minutes Sydney house prices were described as having "continued to rise strongly" now it is noted that "there were some signs of an easing in the strong rate of increase in dwelling prices in Sydney". 

The RBA is expected to lower its growth forecast for 2016 from 3% to 2.75% when the revised growth forecasts are released in the November Statement on Monetary Policy on November 6, says Westpac. The Central Bank has now indicated that 2.75% is probably around trend growth, such a move will not need to be linked with a rate cut. 

"The Bank is becoming progressively more confident around the labour market. Six months ago it was forecasting a gradual rise in the unemployment rate with a peak not expected until the second half of 2016. Three months ago it revised that view to expect that the unemployment rate had peaked but would remain high through the course of 2016", notes Westpac.