RBA forecasts to be consistent with on hold policy – Westpac

Bill Evans, analyst at Westpac, suggests that the first RBA meeting of 2019 takes place on Tuesday and believes that the RBA will lower their growth forecast in response to recent data but maintain an outlook consistent with rates remaining on hold.

Key Quotes

“Of course there will be no rate change following the Board meeting but there will be considerable interest in the Governor’s Statement and the subsequent communications.”

“The key as to whether the Reserve Bank will placate markets and adopt a pure neutral bias by eliminating the “next move up” in its commentary will hinge on how it reassesses its forecasts which will be released with the February Statement on Monetary Policy (SOMP) on February 8.”

“We expect the RBA will forecast growth of 3% in 2019 and 3% in 2020. That higher growth will reflect a limited slowdown in housing construction and no meaningful wealth effect. Those growth forecasts are still above trend and likely to ensure the view that the next move in rates will be up.”

“Accordingly, despite lowering its growth forecasts for 2018 and 2019, we expect the Bank will retain its current stance that the next move in rates will be up.”