FxWirePro: Spotlight on RBA's MPS, Aussie dollar and swap rates

The RBA has downgraded its inflation forecast for this year

The Aussie remains uninspired by the RBA's Monetary Policy Statement.

The Aussie and Kiwi plunged after a report said European Central Bank officials are growing concerned about the exposure of Euro Zone banks to Turkey's banking sector.

The RBA also highlighted risks to global growth from rising trade protectionism without mentioning US President Donald Trump directly.

The central bank confirmed it has downgraded its 2018 inflation forecast, after flagging the change in Tuesday's rates decision. Additionally, its longer-term outlook for inflation was little-changed.

The RBA has just released it's quarterly Statement on Monetary Policy (SoMP), with updated forecasts for inflation, unemployment and economic growth.

Inflation has consistently undershot the RBA's target since early 2015 and was the single biggest reason the central bank cut interest rates to record lows in August 2016.

The RBA said the consumer price index (CPI) would dip to about 1.75 per cent in the current September quarter because of "one off" drops in electricity and gas prices and changes to childcare subsidies, and the CPI would then remain between 2 and 2.25 per cent until 2020, the end of its estimate.

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Beyond that time frame, the central bank kept its inflation forecasts relatively unchanged.

The Reserve Bank of Australia trimmed its near-term inflation forecast but broadly maintained its growth projections.

The RBA now sees underlying inflation slowing to 1.75 per cent by the end of this year - down its earlier prediction of 2 per cent.

RBA Governor, Philip Lowe, claims a "further gradual decline" in Australia's unemployment rate is expected over the next few years to around 5%. The indication of reaching an unemployment rate of 5.0% is important as it provides an explicit expectation by the RBA that the economy will approach full employment.

"The language around the exchange rate was little changed, being within the "recent range of the past two years".

The RBA also expects growth in the nation's $1.8 trillion economy is expected to accelerate to 3.25 per cent - this year and next year - before easing back to 3 per cent in 2020.

The latest set of projections confirmed that the RBA still looks set to keep interest rates on hold for the foreseeable future.

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