On the RBA: 'continues to underestimate the threat from the weaker housing market'

A preview of the Reserve Bank of Australia meeting on Tuesday February 5 via Capital Economics

The main points in summary:

The RBA will probably reduce its GDP growth forecasts

• but should still signal that the next move in rates will be up

Our more pessimistic outlook for economic activity, the labour market and inflation suggest that the Bank may instead have to cut interest rates before long.

We believe that the Bank continues to underestimate the threat from the weaker housing market

Housing downturn and tighter credit conditions will weigh on GDP growth

Unemployment rate should rise again and wage growth will weaken

Further out:

• We now expect the Bank to lower interest rates to 1.25% by the end of the year and follow up with an additional 25bp cut in the first half of next year

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RBA announcement is on Tuesday next week

Following that, on Friday. the Bank will issue its latest Statement on Monetary Policy

• this sets out the Bank's assessment of current economic conditions and the outlook
• published four times a year (on the Friday after the policy meetings in February, May, August and November)