RBA Statement on Monetary Policy: Inflation Creeping on to the Radar?

Good afternoon,

 

• The Reserve Bank (RBA) maintained a mostly upbeat view regarding the global and domestic economies in its Statement on Monetary Policy released today.
• One key change was the insertion of the comment “if the economy continues to perform as expected, higher interest rates are … likely to be appropriate at some point”. However, the RBA added the caveat, “the Board does not see a strong case for a near-term adjustment in the cash rate”.
• There were some more notable hawkish undertones in the RBA’s commentary, particularly around inflation. The RBA highlights that that globally “there is a risk that inflation will pick up more quickly than is currently expected” and referred to capacity constraints across firms globally and domestically.
• The RBA altered some its underlying inflation, unemployment rate and GDP growth projections for the nearer term. Underlying inflation forecasts for 2018 were raised, GDP growth forecasts for 2017/18 were upgraded but unemployment rate forecasts for 2018 were revised up.
• The RBA leaves little doubt that the next move in the cash rate will be up if the economy continues to perform as expected by policymakers. The timing over the medium-term remains the big question. We continue to expect a rate-hike cycle to begin next year.

 

Please see the attached report for more information.

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