RBA SoMP: Committed to do what it can to support jobs, June unemployment expected at 10%

The Reserve Bank of Australia has published its May Statement on Monetary Policy.

Markets are looking through the update for variations on the RBA's forecasts for an outline the Bank’s expectations for the profile of the coronavirus shock and recovery. The following are the main points:

Statement on Monetary Policy

• RBA forecasts CPI -1% for June, +0.25% dec, +1.25% dec 2021, +1.5% June 2022.
• RBA forecasts YoY GDP at -8% for June, -6% dec, +6% dec 2021, +5% June 2022.
• RBA forecasts unemployment 10% for June, 9% dec, 7.5% dec 2021, 6.5% June 2022.
• Will maintain its efforts to keep funding costs low in Australia and credit available to households and businesses - Reuters news.
• RBA says: Will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–
• RBA says: Pace of recovery in the labour market is uncertain.
• Says: Under the baseline scenario, unemployment begins to gradually decline from later this year.
• Says: Year-ended headline inflation is expected to turn negative in the June quarter, for the first time since the early 1960s.
• Says: Trimmed mean inflation is also expected to be lower (but still positive) in the June quarter, to be around 1½ per cent over the year.
• Says: From this low point, inflation is likely to increase gradually, but in this baseline scenario it is likely to remain below 2 per cent for some time.
• Says: Ongoing spare capacity in the labour market is likely to result in a period of slower growth in wages and thus labour costs.
• Says: Given the relatively rapid decline in the number of new COVID-19 cases in Australia, it is possible to contemplate an upside scenario where most domestic restrictions on activity are relaxed a little sooner.
• Says: Greater is public confidence in positive health outcomes, the more likely it is that the easing in restrictions on activity spurs a recovery in spending.
• Says: Alternatively, if the lifting of restrictions delayed or they need to be reimposed or household and business confidence remains low, the outcomes would be even more challenging than in baseline scenario.
• Says path of the recovery will depend crucially on how successful countries are in containing the spread of the virus, and thus how long containment measures need to be in place.
• Says: Plausible baseline scenario for the outlook in Australia involves the relaxation of domestic activity restrictions over the coming months, with most of these restrictions lifted by the end of the September quarter.
• Says: Under this baseline scenario, activity and employment begin to recover in the second half of the year.

More to come...

Full report

What we did know before the release, from a brief statement by Governor Lowe who provided the broad outline as follows:

In the baseline scenario, output falls by around 10 per cent over the first half of 2020 and by around 6 per cent over the year as a whole. This is followed by a bounce-back of 6 per cent next year.

How has AUD reacted? 

AUD was unfazed by the statements initially, but in a delayed reaction, poped to fresh highs of 0.6543 from 0.6523. 

Meanwhile, trade wars are back on and that could spell danger for this meanwhile phase of risk-on in the markets: AUD/JPY heading into the eye of the perfect storm

Description of the RBA Monetary Policy Statement

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).