Daily Commentary BY THE CURVE TEAM –

RBA Remains Optimistic

20th of August, 2018

Governor Lowe remained cautiously optimists as he appeared before parliament on Friday where he looked at the four key areas to watch when it comes to the outlook for monetary policy. Markets were also more optimistic Friday with positive news for the ongoing China-US trade spat.

On Friday, RBA Governor Lowe made his semi-annual testimony to parliament where he once again retained his cautiously optimistic tone. He spoke at length on the four key issues that are shaping the outlook for monetary policy and how they may evolve in the months ahead.

The four key ares he spoke about were:

  • The risks to the international economy from trade wars and US monetary policy
  • The Australian housing market and household debt
  • Wages
  • Inflation

After outlining those three issues in debt, which you can read here, he reiterated his key three points on the outlook for monetary policy:

  • Things are moving in the right direction
  • If current progress continues, the next move in rates will be up
  • The current pace of progress is very gradual so there is not a strong case for a near term adjustment in rates.

It is very much up to the incoming data over the months ahead to shape the outlook for monetary policy. We will need to look through inflation data as the RBA has already flagged that it is expected to slow temporarily. So the key data points to watch are employment, wages, housing credit and growth indicators. How these evolve will shape the outlook for interest rates.

Offshore and markets are suddenly more optimists as further details of the China contingent heading to the US to talk trade emerged. It is expected that the upcoming talks are set to lay the foundations for the next meeting between President Trump and President Xi scheduled for November. So it will take some time before we know if the talks have been a success.

David Flanagan

Director - Interest Rate Markets