**MNI 5 Things: RBA Tad More Dovish Despite Labor Mkt Optimism

By Sophia Rodrigues

     SYDNEY (MNI) - Following are the five key observations we made from the

Reserve Bank of Australia's cash rate decision on Tuesday:

     --The RBA left the cash rate on hold at 1.5% as expected by both the

markets and the economists. This is the 21st straight meeting that the cash rate

has been left unchanged. The RBA also repeated the outlook that "further

progress in reducing unemployment and having inflation return to target is

expected, although this progress is likely to be gradual."

     --The statement overall was slightly more dovish despite optimism on the

labor market, and the RBA pointing to higher commodity prices and the recent

depreciation of the Australian dollar. The RBA said a gradual decline in the

unemployment rate is expected, after being steady at around 5.5% for much of the

past year. The RBA said the exchange rate has depreciated a little but remains

within the range of the past two years. In line with this, the RBA omitted the

line, "An appreciating exchange rate would be expected to result in a slower

pick-up in economic activity and inflation than currently forecast" which

suggests concerns about appreciation have waned.

     --On the downside, the RBA said financial conditions are becoming less

expansionary in some countries. The RBA also pointed to rise in short-term

wholesale interest rates in Australia due to developments in the U.S. and also

other factors. The RBA said it remains to be seen the extent to which these

factors persist, which indicate this is becoming a worrying development.

     --The RBA also softened language around the housing market. It noted that

conditions in the Sydney and housing markets have eased and prices have

declined. Previously it only pointed to slowing in housing markets in these two

main cities. The RBA also said some further tightening of lending standards by

banks is possible but reminded once again that the average mortgage interest

rate on outstanding loans has been declining for some time.

     --The RBA pointed to uncertainty from the direction of international trade

policy in the U.S. but only mentioned in terms of global outlook. In case of

emerging market economies, the language was less worrying with the RBA saying

there have been some strains but largely for country-specific reasons.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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