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--RBA Growth Forecasts Appear Optimistic Vs Leading Index Signal
     SYDNEY (MNI) - From Westpac-Melbourne Institute's Leading Index for August
published Wednesday.
                                                         August   July
Leading Index                                             97.34  97.42
6-Mo Annualized Deviation From Trend, percentage points   -0.19  -0.04
     FACTORS: The index fell in August and pointed to below-trend growth
momentum for a third consecutive month. This is a turnaround from the positive,
above-trend readings at the start of the year. 
     The leading index growth rate has slowed from 1.13% above trend in March to
0.19% below trend in August -- a deterioration of 1.32 percentage points. Two
components have accounted for almost all of the reversal: commodity prices
(-1.31 points) and yield spread (-0.43 points). After rising 40% over the second
half of 2016 Australia commodity prices have fallen 12% to date this year in
Australian dollar terms.
     TAKEAWAY: The leading index suggests the Reserve Bank of Australia's growth
forecasts for the economy in the latest quarterly Statement on Monetary Policy
published last month are on the optimistic side. The RBA's forecast suggests
above-trend growth of 3.25% in 2018 whereas Westpac's forecast is 2.5% -- which
is below the estimated trend rate of 2.75%, according to Westpac.
     COMMENTS: Westpac chief economist Bill Evans expects the RBA to leave the
cash rate on hold this year and in 2018. Westpac's view shows an unchanged cash
rate of 1.5% until at least June 2019. 
     "With macroprudential policies slowing housing markets the need to raise
interest rates in 2018 seems unnecessary. Westpac continues to expect rates will
remain on hold in 2018," Evans said.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:

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