MNI INSIGHT: RBA May Boost 2021 Forecasts

The Reserve Bank of Australia is considering an upward revision of its 2021 forecasts for key indicators such as employment, which is already ahead of earlier forecasts, given the possibility of an earlier-than-expected global rollout of coronavirus vaccines and Australia's relative success in containing the pandemic, MNI understands.

But, while the RBA sees the economic recovery as ahead of schedule, it is unlikely to consider revising its forward guidance until unemployment is consistently below 5.0% and wages growth starts to revive and with it inflation, currently running at 0.7% against the 2-3% target.

The bank has said official interest rates are likely to stay at the current record low 0.10% for at least three years.

The RBA is prepared to provide more monetary stimulus if required, and the likely tools would be adding to the AUD100 billion program of quantitative easing buying Australian Government 5-10 year bonds, MNI understands

But negative interest rates are still considered highly unlikely for Australia, and MNI understands there is a view at the RBA that the potential for early global deployment of coronavirus vaccines is lessening the likelihood that other central banks, such as the Bank of England and even the Reserve Bank of New Zealand, will take rates negative.

HOUSE PRICES

The RBA's latest Statement on Monetary Policy, released in November, forecast unemployment at 8.0% in December. The December data is yet to be released, but November data last week showed unemployment at 6.8%.

The RBA is sanguine about rising house prices, MNI understands, given that the Australian property market lacks the population dynamics which have created annual growth of 20% in New Zealand. Australian population growth is currently at its lowest point in 15 years.

The RBA is also relatively untroubled with regards to any macroeconomic impact of the nation's trade dispute with China.

Iron ore, surging in price, and coking coal for steel production are the two most critical commodities for China's growth, and the bank is understood to have also discounted the economic impact of Chinese students in Australia from its forecasts because of existing border closures.

The bank sees the Chinese student population, 260,000 strong in 2019, as next in China's influence on the Australian economy, but their absence due to the pandemic has removed them as a factor from short-term calculations.