MNI ANALYSIS: RBA To Hold, Debate on Trade War Threat Likely

--RBA Cash Rate Expected To Be Maintained At 1.5%

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia is widely expected to leave

the cash rate unchanged at the March meeting, with key themes relevant to

monetary policy outlook -- wage growth, household debt and household consumption

-- unlikely to change in the one-page statement.

     However, a new inclusion in the statement could be the discussion over the

threat from a trade war. 

     The RBA's cash rate decision is due at 1430 hours (0330 hours GMT) Tuesday

and the unanimous view of both economists and the money market is for the rate

to be left on hold at 1.5% and the neutral outlook maintained.

     Many of the themes on global growth from the February statement are likely

to be repeated on Tuesday, including the above-trend growth in a number of

advanced economies,the pick-up in growth in the Asian economies and continued

growth in China.

     --TRADE WAR THREAT

     One change to look for is any mention of the latest threat of a trade war.

While it is certain this will be a topic for discussion at the board meeting, it

is unclear if it will find a mention in the statement. If it does, it would

bring a slightly dovish tone to the RBA's broader on-hold message given it's a

clear downside risk for the economy.

     RBA Governor Philip Lowe has on numerous occasions talked about the

importance of open markets for the Australian economy. 

     His latest comments on this issue came in Parliamentary testimony last

month, when he said that openness is key to Australia's economic success.

"That's been the case in the past, and it remains the case in the future. That

has a number of elements (importance of open trade) and Australia has more at

risk here than many other countries from a decline in open markets and an

increase in protectionism."

     "We benefit from foreign capital from the rest of the world, so we've got

to be an attractive place for foreign capital, and people as well. It's been

fundamental to our success to date, and I believe it remains fundamental to our

success in the future," he said.

     --GROWTH PICK-UP

     On the local economy, the RBA is likely to reiterate the central forecast

for growth to pickup, to average a bit above 3% over the next couple of years.

While there are downside risks to the Q4 GDP forecast, the data will only be

released the day after the board meeting. The RBA may point to an improved

outlook for non-mining investment and reiterate that the outlook for household

consumption is the continuing source of uncertainty.

     The language on wage growth outlook is unlikely to change despite Q4 wage

price index showing a slight acceleration. This is because the RBA is aware of

downward pressure on wage growth from new enterprise agreements that had much

lower wage increases build into them than the one they replace. 

     There is also a risk that another measure of wage growth which will be

published in the national accounts data on Wednesday -- average earnings -- may

be subdued in Q4. The RBA looks at this measure of wages very closely and has

noted that it has been weaker than the wage price index, so the possibility of

another subdued outcome would be disappointing.

     There may be some tweaks in the language on housing prices, given

nationwide price growth slowed further to a 2.2% rise in February from +3.2% in

January, and from +8.0% six months ago. But there is unlikely to be any change

to the broader message that the build-up of risks in household balance sheets

have been contained.

     No change is also expected in the commentary on the Australian dollar, with

the RBA likely to again focus on the trade-weighted exchange rate that has been

little-changed in the past month.

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

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