RBA's SoMP reinforces a clear risk of further cuts

August RBA statement on monetary policy (SoMP) released earlier on Friday had a strong easing bias though the central bank fell short of providing explicit forward guidance.

As expected, the RBA’s forecast profile for underlying inflation was unchanged. The RBA forecasts average underlying inflation would be stuck at the bottom of two to three percent target band by the end of 2018. Near-term growth was revised higher given Q1 GDP was significantly higher than it had expected, but the RBA is more uncertain about the outlook.

Unemployment was expected to “move only a little lower”, with a degree of spare capacity in the labour market for some time. The statement highlighted the uncertainty about the outlook, citing China, the labour market, the housing market, and the exchange rate.

“We think the RBA would be looking more closely at unconventional options if downside risks to the economy materialize. The RBA thought the likelihood of using such options was “very remote”, but we are much less sure given the cash rate is close to the RBA’s 1% floor,” said ANZ in a report.