RBA Statement of Monetary Policy: GDP forecasts slashed substantially, Aussie breaches 0.7070 support

In its quarterly Statement of Monetary Policy (SoMP), the Reserve Bank of Australia (RBA) made a substantial downward revision to its growth forecasts.

Main Points:

Probability of rate rise or cut more evenly balanced than previously.

Board does not see strong case to move rates in the near term.

Board judges progress on inflation, unemployment can be "reasonably expected"

If progress is made, higher rates would be appropriate at some point.

Might lower rates if there was a sustained rise in unemployment, too low inflation.

Resilience of household consumption is a "key uncertainty".

Unsure whether income growth will rise enough to offset drag from falling house prices.

Household reaction to fall in home prices is a "significant uncertainty".

Cuts GDP forecasts, sees 2.8 pct y/y Dec 2018, 3.0 pct Dec 2019, 2.7 pct Dec 2020, 2.7 pct June 2021.

Lowers inflation forecasts, trimmed mean at 2.0 pct y/y Dec 2019, 2.1 pct Dec 2020, 2.2 pct June 2021.

Sees unemployment at 5.0 pct Dec 2019, 4.9 pct Dec 2020, 4.8 pct June 2021.

Sees wage price index 2.4 pct y/y Dec 2018, 2.5 pct Dec 2019, 2.6 pct Dec 2020, 2.6 pct June 2021.

Labour market remains strong, leading indicators imply above average growth.

Housing credit conditions tighter than have been for some time.

Little evidence tighter credit was main cause of slowdown in home loans.

Dwelling investment could fall off earlier and faster than previously projected.

Outlook for business investment positive, see y/y growth 4.8 pct Dec 2019, 4.9 pct Dec 2020.

Recent downturn in business surveys, if sustained, would imply weaker investment, employment.

Global growth running at solid pace, growth in trade partners seen around trend.

China indicators suggest more pronounced slowing in momentum there.