RBA unlikely to raise rates in the near future - Westpac

Westpac analysts explaining why the Reserve Bank of Australia is a long way out from raising interest rates.

Excerpts: 

• The Reserve Bank Board holds its first meeting for 2018 next week on February 6. We expect policy to remain unchanged. 
• The Bank often uses its first meeting of the year to re-frame the policy discussion with an overhaul of the wording in the Governor's statement accompanying the decision and the Statement on Monetary Policy (SoMP).
• We do not expect to see a major shift this time around. The Bank will acknowledge the more positive tone from abroad and from some of the domestic data. It may also alter its commentary, particularly around the AUD. However, its central view from late last year – that “continuing spare capacity in the economy and the subdued outlook for inflation mean that there is not a strong case for a near-term adjustment in monetary policy” – is likely to remain in place.
• That said, the currency move is likely to see a shift in commentary. The Governor’s statement following the December Board meeting included wording changes that indicated the Bank was less concerned about the AUD, noting simply that “the Australian dollar remains within the range that it has been in over the past few years”. It may choose to reinstate the wording that had been in place previously: "An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast." 
• On inflation, the Bank's broad view that it will remain around or slightly below the 2-3% target band throughout 2018 and 2019 is unlikely to change. The RBA may consider nudging its near term forecasts for underlying inflation up slightly. The November SoMP had underlying inflation at 1.75% in December 2017 and holding at this pace throughout 2018. This looked overly weak at the time (our forecasts were for underlying inflation to hold at 2%yr) and with the December 20107 quarter coming in at 1.9%yr to anticipate a near term slight step down now looks a little awkward. However, the Bank would emphasise any shift as being a minor rounding 'tweak' rather than a material change in view.