RBA Monetary Policy Statement: Unemployment at 5% out to Dec 2020, downgrades growth and inflation outlook (AUD changing hands in small pip range)

• The RBA released its quarterly Statement on Monetary Policy following Tuesday’s Board statement wee the RBA lowered its trimmed mean CPI forecast for 2019 from 2% to 1.75%, and for 2020 from 2.25% to 2% -  a 0.25ppt reduction in the forecast.

The RBA also said that its “central scenario is for the Australian economy to grow by around 2¾ per cent in 2019 and 2020, which is slightly down from 3.0% and 2.75% in the February SoMP.

Analysts at Westpac Banking said that "updates on the labour market were are a particular focus for today to try to sense what degree of weakness the RBA is looking for to trigger a rate cut."

Key notes from the Statement on Monetary Policy Statement:

Downgrades economic growth and inflation outlook for Australia.

• Will be "paying close attention" to the labour market at upcoming meetings;
• Cuts GDP forecast for June 2019 by 0.75ppt to 1.75%, Dec 2019 seen at 2.75%, Dec 2020 at 2.75%;
• Sees trimmed mean inflation 1.5% June 2019, 1.75% Dec 2019, 2% for Dec 2020 and June 2021;
• Unemployment at 5% out to Dec 2020, 4.75% by June 2021;
• Forecasts made on "technical assumption" rates follow market pricing of two cuts to 1%;
• Near-term indicators of labour demand have softened since the Feb statement;
• Partial indicators point to moderate GDP growth for the March quarter;
• Weakness in housing market dragging on inflation, rent inflation lowest since 1993;
• Inflation constrained by government efforts on cost of living, a key uncertainty to outlook;
• Near term outlook for consumption growth has been revised lower;
• Strong growth in tax payments has dragged on household incomes;
• AUD/USD at low end of range, low bond yields offsetting upward pressure from higher commodity prices;
• Outlook for export growth and terms of trade revised upward;
• Bank funding costs have eased, but not flowed through to variable mortgage rates;
• Some signs growth has picked up in China;
• Trade tensions remain downside risk to the global outlook.

About 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 negative (or bearish).