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RBA's SoMP: Inflation forecasts likely to be tweaked - ANZ

FXStreet (Bali) - Felicity Emmett and Riki Polygenis, Senior Economists at ANZ, shared their take on today's RBA’s quarterly Statement on Monetary Policy (SoMP), noting that Inflation forecasts are likely to be tweaked.

Key Quotes

"We expect the RBA to continue to characterise the outlook as one of below trend growth, with the Bank to keep its guidance consistent with rates staying on hold for some time yet. Inflation forecasts are likely to be tweaked given significant moves in oil prices and the AUD, while the growth forecasts are likely to be broadly unchanged."

"On the domestic front, we expect the Bank’s discussion to continue to focus on the prospects for the non-mining growth outlook."

"The RBA is likely to characterise inflation projections as being “consistent with the target over the forecast period” given subdued domestic inflationary pressures stemming from low growth in unit labour costs." That said, we do expect some small changes to reflect the recent drop in the currency and oil prices; the RBA’s August forecasts were based on currency forecasts of AUD0.93 and a TWI of 72, and Brent crude oil forecasts of USD106 per barrel."

"Underlying inflation may be upgraded slightly towards 2¾% from 2½% in 2015 and 2016 although the relatively small magnitude of expected revisions suggests it may not be evident in each period after rounding (the RBA rounds to ¼ppts). For headline inflation, a near-term downgrade to below 2% is likely due to weaker oil prices, with some small upgrade in 2016. The gap between underlying and headline inflation will persist given tobacco excise increases which will be adding approximately ¼ppt to headline inflation each year."

"On GDP growth, we expect little change to the RBA’s forecasts. While the decline in the exchange rate is a positive for the outlook, commodity prices are substantially lower than they were in August and are likely to offset any positive from the lower AUD. Given some downward revisions to growth in last week’s annual national accounts, there is a possibility that the year average 2014 forecast is nudged down from 3% to 2¾ due to base effects. We would not read too much into this, however, given it would be a reflection of revisions to history rather than a change to the outlook."

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