RBA Governor Testimony & SOMP: How Lowe Does one Go?

The key points in this report are:


  • There was an influx of RBA commentary today. RBA Governor Lowe first gave his semi-annual testimony to Parliament this morning. The RBA released its Statement on Monetary Policy soon afterwards.
  • As flagged on Tuesday, the RBA downgraded its near-term growth and inflation forecasts. GDP is expected to grow at 2.5% for this year down from 2.75% previously. The GDP forecast for 2020 remained unchanged at 2.75% at a pace close to trend, and is expected to pick up to 3.0% in 2021.
  • The unemployment rate was revised higher, and is expected to hold steady over 2019 and 2020, before falling in 2021.
  • The RBA was cautiously confident that the domestic outlook would improve. Lowe said that “there were signs that the economy may have reached a gentle turning point”. The Governor pointed to “low interest rates, the recent tax cuts, a depreciation of the Australian dollar, a brighter outlook for investment in the resources sector, some stabilisation of the housing market and high levels of infrastructure” as factors which will see growth return to trend next year.
  • A major takeaway from today’s communications was the discussion of unconventional policies by the Governor in the Q&A session in Parliament. While Lowe downplayed the likelihood that the RBA would need to use unconventional policies, Lowe said that it was “possible that we end up at the zero lower bound”. These comments would suggest that the RBA could lower rates as far as zero if it needs to. Moreover, if unconventional policies were required, it could be accompanied by a package of policies that will depend on the circumstances at the time.
  • The RBA’s forecasts for economic growth this year and next continue to be optimistic in our view. While there are factors which will support the outlook over the second half of 2019, we have doubts that economic growth will strengthen sufficiently to meet the RBA’s growth forecasts. The global environment adds another layer of uncertainty. Indeed, the recent escalation of trade tensions provides a significant downside risk.
  • We continue to expect the RBA will lower official interest rates in October and once again to 0.5% early next year.


Please see the attached report for more information.




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