RBA statement on monetary policy: Still hawkish, downgrades to GDP, real wages to slump

Fri 05 Aug 22, 1:40pm (AEST)
RBA - Reserve bank of Australia silver text on the black stone wall in front of its office building in Sydney central business district
Source: iStock

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Key Points

  • The Reserve Bank reiterates its ready to do what it necessary to bring inflation back to 2-3%
  • RBA downgrades outlook for economic growth, revises inflation forecasts higher and for longer
  • Real wages projected to be negative through 2023

The Reserve Bank expects the economy to dramatically slow in 2023-24 as inflation is expected to peak later and higher than previously thought.

In its quarterly statement on monetary policy, the RBA confirmed downward revisions to GDP growth forecasts while projecting unemployment to begin trending higher from 2024.

RBA economic growth forecasts
Source: Reserve Bank of Australia

Perhaps of some concern is a dramatic slowdown in household consumption, business investment and dwelling investment from 2023. In parallel, real household income is projected to go backwards rather sharply.

RBA economic growth forecasts
Source: Reserve Bank of Australia

So where are the rate cuts?

The RBA's closing statement was rather dovish, noting its commitment to returning inflation to the 2-3% range over time but "in a way that keeps the economy on an even keel."

Still, the updated forecast does not expect inflation to return to the target range until the fourth quarter of 2023.

Amid a global 'tame inflation at all costs' attitude, the RBA is still hawkish until otherwise.

"The strong recovery economy and the high inflation are requiring the withdrawal of monetary stimulus earlier, and faster, than previous expected," the Reserve Bank said.

"The longer high inflation persists and the more expectations adjust, the more monetary policy might need to be tightened.

"In doing so, central banks are having to weigh up the need to rein in inflation and contain inflation expectations against the weakening outlook for growth."

This balancing act seems nigh impossible, which is perhaps why the market still expects rate hikes to begin in the second half of 2023.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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