The RBA has reversed course with regards to it GDP forecasts in the latest quarterly Statement on Monetary Policy. It looks as if stronger-than-expected December quarter GDP figures (which were released in March) has led the RBA to increase its forecasts for GDP growth rate for the year to June 2016. Its forecast range has been increased by 0.5%, as has the comparable 2018 figure, although June 2017 remains unchanged.
On unemployment: the RBA expected average economic growth to be a little lower compared to 2015 and employment growth is expected to ease off from the rates seen in 2015. The RBA said low wage growth is supporting employment growth and notes this to be true “across a number of advanced economies.”
Domestic (non-tradables) inflation and low wage inflation over 2015 has led the RBA to reduce 2016 inflation forecasts to 1% – 2%. The RBA appears to have been surprised as much as anyone by the negative March quarter CPI and the average underlying CPI. This latest SoMP specifically refers to underlying inflation and the “broad-based nature” of weak domestic inflation and lower-than-expected wage inflation in 2015 as being responsible for the change in its forecasts.
Westpac Economics said, “If this true for core inflation forecasts then [the] RBA is very downbeat on domestic inflation.” Ex ANZ chief economist Warren Hogan said the RBA’s “optimism suggests next rate cut a few months away at least. The next big move in rates to 1% will come if/when growth falters.”
AMP Capital’s Shane Oliver said, “Expect more rate cuts.”
