MNI POLICY: RBA Lowe - Data Pretty Positive, Next Rate Move Up

--Lowe Reiterated Guidance That Next Move Likely Up, Not Down

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia's next cash rate move will be

up, Governor Philip Lowe said Tuesday, reiterating the central bank's guidance

as he pointed to healthy growth supported by strong global economic expansion.

     But the RBA is monitoring international risks including a possible

escalation of trade disputes as well as keeping an eye on Australia's weakening

housing market, he told an RBA board dinner in Perth following a decision

earlier Tuesday to leave the cash rate unchanged at 1.5% for the 23rd

consecutive month.

     Lowe called recent economic data "pretty positive", with GDP growing 3.1%

over the past year, inflation around 2% and unemployment at 5.3%.

     --UP, NOT DOWN

     As further progress is made towards full employment and inflation returns

to around the midpoint of the target range, "you could expect the next move in

interest rates to be up, not down," Lowe said.

     The economy has been buoyed by solid growth in the global economy,

including in China, despite some signs of slowing.

     A depreciation in the Australian dollar has been a result of broad

appreciation by the U.S. currency and, if sustained, could support both

inflation and growth, Lowe said.

     --TRADE ISSUES

     Turning to possible headwinds, Lowe pointed to a potential upsurge in

protectionism, a surprise material jump in U.S. inflation which could hurt

financial markets and the real economy, and to the danger of stress in emerging

market economies like Turkey, Brazil and Argentina, with implications for the

global financial system.

     The RBA is also closely monitoring Australia's housing market and trends in

housing finance, whilst paying close attention to the outlook for wages growth

and inflation, Lowe said.

     The Governor noted the recent increase in mortgage rates by some banks, but

added that a "much less remarked upon fact is that the average mortgage rate

paid in Australia has fallen since August last year, as lenders have increased

their discounts."

     He said the fall in housing prices is a normal part of the cycle as

investors are no longer finding it so attractive to invest in residential

property.

     Lowe made some closing remarks on Western Australia, whose economy has been

hit by the slowing of the mining boom, saying that for the first time in a

number of years the RBA is hearing from liaison reports that it is difficult for

firms to find workers with the right skills, including project engineers and

related occupations.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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