The Statement on Monetary Policy (SoMP) is released each quarter and it is closely watched for the updates to the RBA’s own forecasts. In this quarter’s Statement, the RBA has lowered its forecasts for GDP growth and inflation. It forecasts GDP growth in 2018 to be 2.75%, down from 3.0%, while forecasts for headline and core inflation rates for 2017-18 have been cut by 0.25% to 2.00% and 1.75% respectively.
The RBA is aware its current policy is accommodative and quite some way from a neutral stance. While it appears to be optimistic about unemployment, there is nothing in this SoMP to indicate any likely change in its policy stance. “The stimulatory setting of monetary policy in Australia has supported the economy and helped generate a decline in unemployment. Over the period ahead, further progress on reducing spare capacity in the economy is expected, which in turn would support the forecast gradual increase in inflation.” In other words, do not expect the RBA to raise the official rate until further slack has been used up.
The RBA’s forecast for employment did not change from its previous statement in August. The unemployment rate is forecast to remain at 5.5% through 2018 and 2019. This is a little strange given the RBA’s reference to leading indicators of employment in its recent board meeting press release.