Today the Reserve Bank of Australia (RBA) released its quarterly Statement on Monetary Policy (SoMP). The release provides an update on the RBA’s thoughts on the Australian economic outlook, including forecasts out to Dec-2013. The previous statement was released on 5 May.
In line with our view, the RBA has upgraded both its headline and underlying CPI forecasts relative to the May statement of monetary policy. However, what was surprising was the relatively small downwards revision to near-term GDP growth in response to the impact of the Queensland floods. RBA forecasts now imply particularly strong growth in the June quarter.
Figure 1: RBA forecast table (versus May SoMP)
| Dec-10 | Jun-11 | Dec-11 | Jun-12 | Dec-12 | Jun-13 | Dec-13 | |
| Real GDP (%, y/y) (a) | 2.70 | 1.25 | 3.25 | 4.50 | 3.75 | 3.75 | 3.75 |
| (May SoMP) | 2.70 | 2.50 | 4.25 | 4.25 | 3.75 | 3.75 | 3.75 |
| CPI (%, y/y) inc. Carbon tax (a) | 2.70 | 3.60 | 3.25 | 2.50 | 3.50 | 3.75 | 3.25 |
| (May SoMP) | 2.70 | 3.50 | 3.25 | 2.50 | 3.00 | 3.00 | 3.25 |
| Underlying inflation (%, y/y) (a) | 2.25 | 2.75 | 3.25 | 3.00 | 3.25 | 3.25 | 3.25 |
| (May SoMP) | 2.25 | 2.50 | 3.00 | 3.00 | 3.00 | 3.00 | 3.25 |
| Source: RBA | |||||||
| (a) % over year to quarter shown |
Figure 2: Real GDP growth, including forecasts
Figure 3: Underlying inflation, including forecast
Figure 4: Changes in RBA’s assessment of key offshore macroeconomic variables
Figure 5: Changes in RBA’s assessment of key onshore macroeconomic variables
| Wages/ | ||||
| Labor market | Capex | GDP forecast | Headline CPI forecast | Underlying CPI forecast |
| – | 0 | + | + | + |
| (+, 0, -) signify an upgrade, unchanged or downgrade versus previous statement | ||||
| Source: RBA | ||||
Bottom line:
Despite the upbeat view of domestic conditions in the RBA’s statement, it is clear that global market conditions remain a key concern. The RBA says: “A more disorderly resolution (to the sovereign debt crisis) is a key risk to these forecasts…”
In addition, global price pressures continue to be noted with the RBA saying “the recent easing of commodity prices have reduced upward pressure on headline rates of inflation globally, though core rates still appear to be trending higher”
Today’s statement has confirmed our view that domestic conditions remain supportive for further tightening in monetary policy. However, the key issue holding back the RBA is the current turmoil in global financial markets and a potential deterioration in global economic conditions.
BARCLAYS CAPITAL
ECONOMICS RESEARCH | INSTANT INSIGHTS