RBA likely to tighten monetary policy stance in second half of 2019, says ANZ Research

The Reserve Bank of Australia (RBA) is expected to tighten in the second half of 2019. As this will push the starting point to a level that will make it difficult for the Bank to project core inflation of 2-1/2 percent in 2021 when it extends its forecast out to the end of that year, according to the latest report from ANZ Research.

The positive data surprises in Australia keep coming. Business conditions rose in August and remain well above average levels. Consistent with this employment growth was strong and the ANZ Labour Market Indicator implies it will continue to remain robust.

"These data and last week’s Q2 GDP report, among other things, help inform the update to our economic forecasts. While we don’t think GDP growth can maintain the heady 4 percent annualised pace seen in the first half of 2018 we remain positive on the outlook for the rest of 2018 and 2019," the report added.

Growth is expected to be around 3 percent in those years, before a modest slowdown in 2020 is seen. While there have been minimal changes at the headline level, there is quite a bit going on in the detail.

Overall, though, growth is forecast to be sufficient to push the unemployment rate below 5 percent in 2020. This generates upward pressure on wages in the forecasts and sees core inflation above 2 percent by late 2019.