More Upbeat On Econ, Slight Tweak To Guidance, 3-Yr Yld Tgt Decision In Jul

The RBA marked to market its assessment of the domestic economy, ahead of the official release of the SoMP on Friday. The bank now expects GDP growth of 4.75% in in '21 (prev. 3.5%) & 3.5% in '22 (unch. from prev. 3.5%), while it sees unemployment at ~5.0% at the end of '21 (prev. 6.0%) and ~4.5% at the end of '22 (prev. 5.5%). On the inflation side, the Bank noted that "despite the strong recovery in economic activity, the recent CPI data confirmed that inflation pressures remain subdued in most parts of the Australian economy." Still, it now looks for underlying inflation of 1.5% come the end of '21% (prev. 1.25%) and 2.0% in mid '23 (prev. 1.75%), which is a little more upbeat.

• The main point of note saw the Bank state that "at its July meeting, the Board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond. The Board is not considering a change to the target of 10 basis points." The Bank also stressed that "the Board is prepared to undertake further bond purchases to assist with progress towards the goals of full employment and inflation. The Board places a high priority on a return to full employment." The highlight of its priority in the final sentence of that passage is a new inclusion to the statement but isn't particularly shocking.
• The Bank also confirmed that "the date for final drawings under the Term Funding Facility is 30 June 2021."
• The Bank repeated its commentary surrounding the housing market, in that it "will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained." Comments on house prices were widened to cover "prices rising in all major markets."
• The Bank concluded with "the Board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest." The final sentence previously read "the Board does not expect these conditions to be met until 2024 at the earliest." This tweak was likely a product of the aforementioned updated projections surrounding inflation and unemployment.