The RBA was front and centre last week with the May Board meeting followed by a speech by Governor Lowe and then the release of the latest statement on Monetary Policy. While no change to the cash rate and accompanying statement were expected, there were some subtle changes to the RBA’s forecasts in their policy statement. Economic growth is still forecast to hit 3% while inflation forecast was revised up to 2.00% (from 1.75%). In contrast, the unemployment rate forecast for 2018 was nudged up to 5.50% from 5.25% previously.
All eyes this week will be on Tuesday night’s “good news” pre-election Budget, the last before the Federal election which has to be held by mid-May next year. The improvement in the economy, higher commodity prices and restrained government spending have resulted in an estimated $10bn improvement in the budget from what was forecast last December. This provides the Government with the option of delivering a budget surplus earlier than scheduled or use the extra cash to boost economic growth by announcing income tax cuts and infrastructure spending. It will clearly be the latter in an effort to hopefully rebuild some political credibility ahead of next year’s Federal election. The government will be hoping for a post-budget lift in voting intentions from the 51% to 49% currently favouring the ALP.