For tomorrow’s RBA Statement on Monetary Policy, MOragn Stanley foresees:
The key event this week… is Friday’s Statement on Monetary Policy, outlining the staff’s assessment of growth and inflation outlook. More importantly, the Bank is assessing the impact of an AUD decoupling from weaker terms of trade, and macro-stability concerns on the rise in investment activity within the housing market.
Possible RBA downgrades: In the quarterly Statement, we’ll be watching to see if ‘guidance is lowered’. Our GDP growth forecast sits at 2.5% for 2015, materially below the RBA’s current forecast of 2.75-3.75%. This weaker growth outlook is partially due to our FX strategy team’s out-of-consensus call for AUD parity in 2014 on the back of global liquidity, and Japanese flows. Any RBA commentary on liquidity and valuation will be closely watched.
Bottom line: We expect the RBA to guide to lower for longer growth rates over the course of the year, underpinning the same for policy rates. We see the housing market as the key bellwether – as long as prices and activity levels are holding up, the RBA will continue to refrain from easing further. But at the same time, the first rate hike remains a long way off (November 2015 in our base case).
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
