The RBA has recently released its quarterly assessment of the economic outlook and expectations for monetary policy in its Quarterly Statement of Monetary Policy.
It is noteworthy that the economic growth and inflation backdrop have both been significantly stronger than the RBA expected, prompting the RBA to upgrade its forecasts.
The good news is that economic growth (GDP) and the labour market are significantly stronger than the RBA expected just three months ago and way ahead of their forecasts of 12 months ago.
While the growth outlook appears very robust the other side of the coin is that the RBA has had to adjust its outlook for inflation significantly. This shift in inflation expectations has triggered a notable shift in policy guidance, with Governor Lowe now conceding that policy tightening “could” occur this year. This compares to the previous guidance that interest rates were not likely to rise until 2024. While the RBA has shifted its view on rates from its previous ultra dovish view, it remains relatively dovish versus other central banks and the domestic interest rate markets where 4 rate rises are fully priced for this year.
Against this backdrop we share our view on the domestic outlook, speaking to the inflation and interest rate outlook and the implications for asset markets.
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Written by
David Cassidy, Head of Investment Strategy
David is one of Australia’s leading investment strategists.