Daily Commentary BY THE CURVE TEAM –

RBA’s Narrative Continues to Evolve

6th of December

The RBA decided to leave the cash rate unchanged yet again in December with it now spending the whole of 2017 at 1.5%. While the cash rate remained unchanged over the course of the year, the RBA’s narrative around the outlook has slowly been shifting.

Yesterday’s accompanying statement reiterated the recent trend we have seen over the past few months. The RBA remains optimistic in its growth outlook and that the uplift in growth will underpin ongoing employment growth. This is expected to eventually lift wages growth and inflation.

This part of their narrative is consistent with what we have seen since their first statement of 2017 following their February meeting. Where things have change more materially is around the risks to the outlook.

At the beginning of the year, it was the outlook for non-mining investment that was seen as the biggest risk while consumption was expected to pick up over the course of the year.

The greatest risk now is around consumption driven by debt dynamics and lack of wage growth while the enduring uplift in business confidence and conditions are seen concerns around non-mining investment dissipate. It is their view that if the growth story does continue as expected that both the debt dynamics and wage growth issues should resolve themselves over the forecast period.

How the outlook and the current risks evolve will go a long way to determining where monetary policy heads during 2018. In next weeks Curve Monthly Insights I will delve into the outlook for Australian monetary policy and what factors could influence it over the year ahead.

David Flanagan

Director - Interest Rate Markets