MNI POLICY: RBA Lowe Signals Cash Rate On Hold For Longer

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia Governor Philip Lowe gave his

opening statement to the House of Representative Standing Committee on Economics

on Friday. Below are the key observations we made from the speech:

     --Governor Lowe maintained the guidance that the next move in interest rate

is more likely to an increase, not a decrease. Lowe also reiterated there is not

a strong case for a near-term adjustment in interest rates. But in a signal that

the cash rate is likely to be on hold for longer, Lowe said that "it is likely

that we will hold steady for a while yet."

     --Lowe was also very clear in his forward guidance. The RBA will maintain

the current monetary policy stance until the benchmarks are more clearly in

sight, he said. Those benchmarks refer to full employment and the inflation rate

comfortably within the target range on a sustained basis.

     --The RBA remains committed to achieving an average rate of inflation over

time between 2% and 3%, Lowe said. While this may seem a change from Lowe's

previous commitment that he will achieve an average inflation rate of 2.5% over

time, it is likely they both mean the same.

     --Lowe highlighted a few uncertainties to the forecasts. On the global

front, he referred to the possibility of an escalation in global tensions, the

possibility of a larger-than-expected pick-up in inflation in the U.S., and

risks from individual economies like Argentina, Brazil, Italy and Turkey. "We

are watching developments closely as a further escalation of problems could be a

catalyst for a period of increased stress in the global financial markets," he

said.

     --On the local front, Lowe referred to uncertainties from housing market

and household debt, wage growth and outlook for inflation.

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

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