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MNI ANALYSIS: RBA Tad More Upbeat, Omits Worry Over House Mkt

By Sophia Rodrigues
     SYDNEY (MNI) - The Reserve Bank of Australia's optimism on the economy
appeared to have increased slightly further in September as concerns over the
housing market also dropped out of its monitoring, leaving household debt as its
main area of worry.
     In the minutes of the August board meeting, the RBA removed the labor
market as an area requiring careful monitoring and in the minutes of September
board meeting, published Tuesday, it dropped the line that the "conditions in
the housing market and household balance sheets" continue to warrant careful
monitoring. However, it retained the comment that the "need to balance the risks
associated with household debt in a low-inflation environment" was the key
reason it has left unchanged its monetary policy stance.
     At the same time, the RBA once again highlighted the impact of the
appreciation of the Australian dollar on domestic growth and inflation, and
reminded that a further appreciation "would be expected to result in a slower
pick-up in growth and inflation."
     This worry on the elevated exchange rate, coupled with medium-term concerns
about demand and prices for Australia's key export commodity -- iron ore -- 
means the RBA may have to keep the cash rate on hold for longer until it is more
confident about the growth prospects for the economy.
     The minutes of the September board meeting contained much discussion on the
labor market, with members noting that "labor market conditions had continued to
     "Forward indicators suggested that the improvement in labor market
conditions was likely to continue," the RBA said, adding that this would support
household incomes and thus spending in the period ahead.
     The commentary on wage growth didn't sound upbeat, though the RBA said that
recent wage price data and trends in new enterprise bargaining agreements were
consistent with its forecast that wage growth would remain low for some time.
     But as spare capacity in the labor market continued to decline and the
economy continued to strengthen, supported by the low level of interest rates, a
gradual increase in wages and inflation was expected, the RBA said.
     The minutes contained a special discussion on the Chinese economy, which
Governor Philip Lowe mentioned in his speech on the evening of September 5,
after the cash rate decision.
     As Lowe mentioned, the RBA discussed the challenges facing the Chinese
authorities as they balance their commitment to short-term growth targets with
their efforts to address medium-term risks arising from high and rising levels
of debt in the Chinese economy.
     Lowe, however, didn't mention the other important discussion related to
China -- the outlook for Chinese demand for iron ore.
     The RBA discussed that Chinese steel production was likely to be close to
its peak and that growth in Chinese steel production would not add much to
global demand for iron ore in the future, according to the minutes.
     The RBA noted that iron ore prices had been supported at higher levels
because of sustained strong demand for steel in China but prices were expected
to fall in the period ahead because of an ongoing expansion of global iron ore
supply followed an extended period of strong investment.
     In the longer-run, there was potential for India to have a noticeable
effect on commodity markets as investment in residential construction and
transport infrastructure increased, the RBA said.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$,MX$$$$]

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