Reserve Bank of Australia Statement on Monetary Policy (SoMP) for May 2023

Headlines via Reuters:

  • Will do what is necessary to return inflation to target
  • Some further tightening may be required to reach target in a reasonable timeframe
  • Longer inflation remains above target, greater the risk of price-wage spiral
  • Board wants to preserve as much of employment gains as possible
  • House prices, A$ had responded to expectation that rates might not increase
  • Goods disinflation limited so far, energy price inflation to stay high this year
  • Rent growth to pick up, add materially to inflation out to mid-2025
  • Wage growth is consistent with inflation target, but only if productivity recovers
  • Forecast trimmed mean inflation 4.0% end 2023, 3.1% end 2024, 2.9% mid-2025
  • Forecast CPI inflation 4.5% end 2023, 3.2% end 2024, 3.0% mid-2025
  • Forecast GDP growth 1.2% end 2023, 1.7% end 2024, 2.1% mid-2025
  • Forecast unemployment 4.0% end 2023, 4.4% end 2024, 4.5% mid-2025
  • Forecast wage growth 4.0% end 2023, 3.8% end 2024, 3.7% mid-2025
  • Forecasts assume peak rate around 3.75%, falling to 3.0% by mid-2025
  • Global financial stability concerns pose a downside risk to economy
  • China expected to comfortably achieve its 5% growth target this year

The RBA AUD forecasts are for:

  • the TWI at 0.60 (previously at 0.62)
  • AUD/USD at 0.67 (prior 0.69)

That CPI forecast for 3% in 2025 is unchanged from previously. The 3% rate is of significance because it's the top end of the RBA target band, ie the Bank does not see inflation down to target until 2025.

GDP forecasts are notably lower than those projected in the February SoMP.

Note that the forecasts above are based on the technical assumption that interest rates peak at around 3.75% in mid-2023, before easing back to around 3% to June 2025.

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The RBA's Statement on Monetary Policy sets out the Bank's assessment of current economic conditions, both domestic and international, along with the outlook for Australian inflation and output growth.

  • A number of boxes on topics of special interest are also published.
  • The Statement is issued four times a year.