RBA tipped to emphasise ongoing low inflation

Reflecting on the RBA’s upcoming Statement of Monetary Policy (SoMP) in its latest Economic Preview, ANZ predicted that the bank is likely to keep rates on hold at 1.5 per cent in light of persistently low inflation.

The Statement, which is due to be released at 11:30am tomorrow, sets out the Reserve Bank's assessment of current economic conditions, both domestic and international, along with the outlook for Australian inflation and output growth. 

ANZ noted that the RBA’s post-meeting statement yesterday said that while the bank sees GDP growth returning to 3 per cent over the next couple of years, its inflation forecasts are “largely unchanged”.

In light of this, ANZ said it will be watching the SoMP closely to see if the RBA forecasts underlying inflation edging up closer to the middle of its 2 to 3 per cent target band.

ANZ senior economist Felicity Emmett commented: “The forecasts in the SoMP will be extended out to the middle of 2019 and we expect that the Bank will publish a small lift in underlying inflation forecasts for June 2019.”

Further, ANZ predicted that the RBA’s assessment of key domestic and global risks will remain the same.

Ms Emmett said: “We expect that the Bank will continue to worry about 1) the outlook for China given overcapacity and high debt levels; 2) the degree of slack in the Australian labour market; and 3) the disinflationary impact of the supply in the apartment market over the next year or so.

“We think the Bank is also likely to express concern around the outlook for global trade given the rise in popularity of protectionist politics, evident in the Trump election and the Brexit vote.”

[Related: RBA makes cash rate call]