RBA’s monetary policy stance likely to stay accommodative in quarters ahead

The Australian central bank’s monetary policy stance is expected to stay accommodative in the quarters ahead, noted Scotiabank in a research report. The benchmark Cash Rate Target has continued to be at 1.5 percent since August 2016. The RBA’s policymakers expect that both headline and underlying inflation might accelerate gradually in the course of 2018 to slightly above 2 percent year-on-year; the headline inflation measure continued to be the same at 1.9 percent year-on-year in the first quarter of 2018.

“We expect headline inflation to hover below the mid-point of the RBA’s 2–3 percent target range through 2018. Price gains will likely strengthen in 2019, reaching 2⅔ percent y/y by the end of the year. Wage inflation, at 2.1 percent y/y in the first quarter, will likely accelerate gradually over the coming quarters”, stated Scotiabank.

RBA has stated that the Australian businesses have recorded that labor shortages are restricting output, yet such capacity restraints have yet to filter through to higher wage gains. The RBA is likely to join global central banks and start a cautious monetary normalization phase in the final quarter of 2018 on the back of expected gradual strengthening in wage pressures that would feed demand-driven inflation, added Scotiabank. Regardless of modest tightening through 2018, monetary conditions would continue to be growth supportive in Australia.

At 18:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at 29.8095, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 38.3996. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex