Yahoo Finance 
RBA: Australia's housing downturn is a "significant area of uncertainty"
The RBA sees weaker economic growth, sluggish wage growth and slower progress in lifting inflation and lowering unemployment in the years ahead.
It warned that Australia's housing market downturn is a "significant area of uncertainty".
A sustained lift in unemployment or no progress in returning inflation to its target are two triggers that could see the RBA cut rates again.
Financial markets think that's likely. A 25 basis point rate cut is now fully priced by the end of this year.
The Reserve Bank of Australia (RBA) sees weaker Australian economic growth, sluggish wage growth and slower progress in lifting inflation and lowering unemployment in the years ahead, helping to explain why it has abandoned the view that the next move in Australia's cash rate is likely to be higher.
It also admits that Australia's housing market downturn is a "significant area of uncertainty," an acknowledgment that recent weakness in most housing indicators could easily present downside risks to its already subdued forecasts.
Here are the bank's updated economic forecasts, comparing them to what the bank was expecting three months ago.
There's few surprises in the numbers, reflecting not only recent economic data but also that RBA Governor Philip Lowe basically told markets earlier this week what the changes would be.
However, of those surprises there were, they were all weaker than markets were expecting.
GDP growth in the year to December 2018 is now expected to come in at 2.75%, well down on the 3.5% level the bank saw just three months ago due to the large slowdown reported in the September quarter last year.
Further out, the RBA now sees GDP growth of 3% in the year to December this year before easing to a year-ended pace of 2.75% until Q2 2021.
Those forecasts are 25 basis points lower than what the bank offered in November last year. Notably, 2.75% is regarded as Australia's trend growth rate -- the level sufficient to keep inflation and unemployment relatively steady.
The lower growth profile is reflected in the bank's updated unemployment and inflation forecasts with a slower reduction in unemployment, and more gradual lift in underlying inflation, now expected than what was the case three months ago.
Crucially, while the RBA still sees underlying inflation moving back to within its 2-3% target, the bank still doesn't see the year-ended rate hitting the midpoint of its target by the end of June 2021.
That's important given the RBA is unlikely to lift Australia's cash rate unless it's confident that inflation will move back to 2.5%.
Helping to explain why the RBA still sees sluggish progress in returning inflation towards the midpoint of its target, it only sees Australia's unemployment rate falling to 4.8% by June 2021, above the level where many suspect wage pressures will begin to accelerate, known as the non-accelerating inflation rate of unemployment, or NAIRU for short.
Reflecting the view that unemployment won't fall all that much, the RBA only sees Australia's wage price index lifting to 2.6% per annum by the end of Q2 2021, well below the 3.5% level previously nominated by Philip Lowe that would be required to return underlying inflation to 2.5%.
Again, that's another sign that interest rates are unlikely to move for the foreseeable future in the RBA's opinion, explaining why the bank abandoned its mild tightening bias on the outlook for the cash rate earlier this week.
It now has a clear neutral bias, indicating that the next move in the cash rate could be either up or down.
The RBA's full economic forecasts, and an explanation for them, can be accessed here.
As for the risks to its update forecasts, one domestic factor stood out: the housing market.
"The current correction in the housing market is a significant area of uncertainty," the RBA said.
"The implications of the housing market correction for the broader economy depend on how households respond, including how they take previous price increases into account in their spending decisions.
"In the context of high household debt, currently weak income growth and falling housing prices, the resilience of consumption growth is a key uncertainty for the overall outlook."
The RBA said the outlook for consumption hinges on income growth picking up by enough to offset the effects of falling home prices.
Such a pickup in income growth seems probable given the improving labour market, but is not assured
Adding extra importance to the National Australia Bank's update on Australian business confidence and conditions for January next week, the RBA noted the sharp slump in conditions reported in December, if sustained, would imply a weaker outcome for "both investment and employment growth".
The RBA reaffirmed that a sustained lift in unemployment was one outcome that would likely increase the odds of a reduction in the cash rate. A slowdown in hiring, depending on growth in the labour force, would likely lead to such a scenario.
The second trigger it nominated was "a lack of progress in returning inflation to target".
"In light of the recent data and the inherent uncertainties around the forecasts, the probabilities [for the next move in the cash rate] have shifted to be more evenly balanced than previously," the bank said.
"The Board therefore does not see a strong case to adjust the cash rate in the near term."
This link will take you to the RBA's overview on current and expected economic conditions both at home and abroad.
Internationally, the RBA said that while the global economy continues to grow at a "solid rate," downside risks had "increased".
"Trade tensions are beginning to affect the level and pattern of trade," it said.
"GDP growth in China slowed as expected over 2018, following the earlier tightening in financial conditions. However, a range of indicators suggest a more pronounced slowing in momentum."
While the RBA sees no strong case to adjust the cash rate in the near term, financial markets certainly do, fully pricing in a 25 basis point rate cut by the end of this year. Before the RBA's latest forecasts were released, a rate cut was not fully priced in until February 2020.
The Australian dollar has fallen heavily on the shift forward in rate cut expectations, losing 0.5% to .7065 against the US dollar.
Benchmark 10-year Australian government bond yields have also fallen to 2.075%, near the lowest level since late 2016.
Now read: 10 skills you won’t need by 2022 — and 10 you will
Now read: Aussie industries with the best and worst job growth in 2018
