RBA  May 5th 

Good afternoon,

• Today’s Statement on Monetary Policy continued to reveal an RBA still cautiously upbeat on the outlook. Indeed, the RBA said that it had “increased confidence” in its forecasts for a pickup in inflation.
• Changes to growth and inflation forecasts were few and only minor. The broader outlook remains unchanged. The RBA, however, seemed more positive in its forecasts given that domestic growth had picked up in the March quarter, the global backdrop had improved and that the terms of trade had held up higher than expected.
• Nonetheless, there remained plenty of notes of caution. Soft wages growth concerns regarding the outlook for non-mining investment and the impact of high household indebtedness on consumer spending were raised in today’s commentary.
• A recent loss of momentum in indicators in some major economies and a drop in commodity prices bear close watching.
• The concerns surrounding the housing market and the high level of household indebtedness suggest a high hurdle of cutting rates lower. However, the expectation that inflation will stay low, the ongoing spare capacity within the labour market and the limited prospects that wage growth will not pickup any time soon suggests a rate hike is not on the horizon either.

Courtesy St George Bank