RBA SoMP: Central bank cuts growth outlook

Reuters reports that Australia's central bank on Friday downgraded the outlook for economic growth, warning that more rate hikes will be necessary to bring down sky-high inflation even as it strives to avoid an outright recession.

In its quarterly Statement on Monetary Policy, SoMP, the Reserve Bank of Australia (RBA) raised its forecasts for inflation as it predicts higher wage growth ahead, and foreshadowed a faster pick-up in unemployment next year. 

Key notes

"There are many uncertainties surrounding these forecasts that make the path to achieving the Board's objective of returning inflation to target while keeping the domestic economy on an even keel a narrow one," said the RBA.

Board expects rates will need to increase further.
    
Not on pre-set path, will hike in larger steps or pause if considered necessary.
    
Rates have already risen significantly, mindful policy operates with a lag.

Sees global growth slowing significantly, risks from synchronised central bank tightening.
    
Domestic effect of rising energy prices to be much greater than first assumed.
    
Retail gas and electricity prices seen rising 20-30% over 2023.
    
Cuts economic growth forecasts sees GDP Dec 2022 2.9%, Dec 2023 1.4%,Dec 2024 1.6%.
    
Lifts inflation forecasts sees CPI Dec 2022 8.0%, Dec 2023 4.7%, Dec 2024 3.2%.
    
Forecasts trimmed mean inflation Dec 2022 6.5%, Dec 2023 3.8%, Dec 2024 3.2%.
    
Lifts unemployment forecasts sees Dec 2022 3.4%, Dec 2023 3.7%, Dec 2024 4.3%
    
Lifts wage growth forecasts sees Dec 2022 3.1%, Dec 2023 3.9%, Dec 2024 3.9%.
    
Forecasts assume cash rate peaks around 3.5%, falls to 3.0% by end 2024.
    
Many uncertainties surrounding these forecasts, particularly on consumption.
    
Wage-, price-setting behaviour a material risk to inflation outlook.
    
Risks to China's economy skewed to downside by zero-covid rules, property weakness.

AUD/USD update

Meanwhile, AUD/USD was unchanged on the notes from the SoMP. 

About the SoMP

The RBA Monetary Policy Statement released by the Reserve bank of Australia reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. It is considered as a clear guide to the future RBA interest rate policy. Any changes in this report affect the AUD volatility. If the RBA statement shows a hawkish outlook, that is seen as positive (or bullish) for the AUD, while a dovish outlook is seen as negatvie (or bearish).