RBA August Statement on Monetary Policy: Sees unemployment at 10% by end of year

The Reserve Bank of Australia is releasing the full detail of its updated forecasts in the August Statement on Monetary Policy.

This follows Tuesday's statement, whereby the Governor, Phillip Lowe, revealed that the forecast of -6%yr contraction by end 2020 has not changed, though they trimmed 2021 growth slightly, to +5%.

Markets are looking to the assessment of the risks ahead, especially with respect to the forever higher Aussie dollar.

With that respect...

RBA says,

the Australian dollar is now in a range that is broadly consistent with its fundamental determinants.

Here are more of the details...

• RBA says he board will not increase the cash rate target until progress is being made towards full employment, the inflation target..
• Forecasts YoY GDP at  -6% for June, -6% for dec, +5% dec 2021,  +4% dec 2022.
• Says the board is committed to doing what it can to support jobs, incomes and businesses.
•  Forecasts unemployment 10% for dec, 8.5% dec 2021, 7% dec 2022.
• Forecasts cpi +1.25% for dec, +1% dec 2021, +1.5% dec 2022.
• Says further purchases of Australia govt bonds will be undertaken as necessary in the secondary market.
• Forecasts trimmed mean inflation +1% for dec, +1% dec 2021, +1.5% dec 2022.
• Says monetary financing of budget deficits is not an option under consideration in Australia.
• Says forecasts assume cash rate, three-year yield target remain at current levels.
•  Says given the nature of the challenges posed by the pandemic, there was no need to adjust the mid-march package.
•  Says the board has, however, not ruled out adjusting this package in the future if circumstances warrant.
•  Says a gradual recovery in GDP is now underway across much of the country.
•  Says board continues to view negative interest rates as being extraordinary unlikely in Australia.
•  Says heightened activity restrictions in victoria are likely to offset the pick-up in GDP.
•  Says the Australian dollar is now in a range that is broadly consistent with its fundamental determinants.
• Says victoria restrictions likely to reduce q3 GDP growth by at least 2 percentage points.
•  Says the pace of Australia's economic recovery is expected to be slower than previously forecast.
• Says the measures taken to address the current outbreak in victoria state will further delay the recovery.
• Says the coronavirus outbreak has been enormously disruptive for Australia's labour market.
•  Says y/y wage growth expected to trough around 1% before picking up gradually to around 1.75% by end 2022.

AUD reaction

The currency has been consolidating at the recovery and weekly highs in the 0.7230s into the release and events today, (China Trade Balance on the cards also),.

The currency has held relatively steady at 0.7220 as the details of the forecasts seep through to markets.

Meanwhile, the coronavirus cases mount

Looking beyond, we are looking now for Assistant Governor Economic Luci Ellis's speaking via an ABE webinar.

Description the RBA Monetary Policy Statement

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).