Table 5. Output Growth and Inflation Forecasts(a) Per cent Year-ended Dec 2018 June 2019 Dec 2019 June 2020 Dec 2020 June 2021 GDP growth 2.3 13/4…

The RBA’s May 2019 Statement on Monetary Policy Outlook

https://www.rba.gov.au/publications/smp/2019/may/economic-outlook.html

includes the following table.

Explain with reference to the forecast data in this table why you think that the RBA did not see a case to adjust the target cash rate at its May meeting. [3 marks]

Suppose that new data comes in that is different to the forecasts. Suggest one possible change in the data that might cause the RBA to want to adjust the target cash rate, and explain how and why they would make this change. [4 marks]

Imagine that the RBA was not an independent central bank, that is, suppose the Governor was subject to active political pressure by the incumbent government.  Describe the likely scenario the Governor would face in the lead-up to an election and explain why. [3 marks]

Table 5.1: Output Growth and Inflation Forecasts(a)Per centYear-endedDec 2018June 2019 Dec 2019June 2020 Dec 2020 June 2021GDP growth2.313/423/423/423/423/4(previous)(23/4)(21/2)(3)(23/4)(23/4)(23/4)Unemployment rate(b)5.055543/4(previous)(5)(5)(5)(43/4)(43/4)CPI inflation1.813/42222(previous)(11/4)(13/4)(2)(21/4)(21/4)Trimmed mean inflation1.811/213/4222(previous)(13/4)(2)(2)(21/4)(21/4 )Year-average20182018/1920192019/2020202020/21GDP growth2.821/4221/223/423/4(previous)(3)(21/2)(23/4)(23/4)(23/4)(23/4)(a) Technical assumptions include the cash rate moving in line with market pricing, TWI at 60, A\$ at US\$0.70 andBrent crude oil price at US\$68 per barrel; shaded regions are historical data; figures in parentheses show thecorresponding forecasts in the February 2019 Statement(b) Average rate in the quarterSources: ABS; RBA