Trial now

(Z1) Off Lows, But Remains Weak


Still Vulnerable


Bullish Price Sequence

By Sophia Rodrigues
     SYDNEY (MNI) - The Reserve Bank of Australia left the cash rate on hold at
1.5% Tuesday as expected by both the markets and the economists. This was the
22nd straight meeting that the cash rate has been left on hold. The RBA last
moved the rate in August 2016 when it lowered by 25 basis points to 1.5%.
     Following are the five key observations we made from the RBA's cash rate
     --As flagged in MNI State of Play, the RBA maintained its glass-half full
approach and reiterated that the outlook remains for further progress in
reducing unemployment and returning inflation to target. However, if viewed
closely, the statement is more dovish compared to July. 
     --The RBA acknowledged that growth in China has slowed a little. This is a
significant change from July when it said the Chinese economy continues to grow
solidly. The downgrade means the RBA is likely to lower outlook for trading
partner growth in the quarterly Statement on Monetary Policy, due Friday.
     --The RBA said inflation is likely to be higher in 2019 and 2020 that
currently -- an outlook that shows it is making progress towards the inflation
goal. However, it lowered outlook for 2018 inflation to 1.75% from "bit above
2%" because of "once-off" declines in some administered prices expected in Q3
     --As expected by MNI, the RBA maintained optimism on the labor market and
now expects the jobless rate to decline over the next couple of years to around
5%. Previously, the RBA's outlook was for jobless rate to decline to 5.25%. It
appears the RBA's SOMP on Friday may show jobless rate falling to 5% by December
     --There was a lot of interesting commentary around housing market and the
mortgage rate. The RBA acknowledged conditions in Sydney and Melbourne housing
markets have continued to ease and omitted the line on nationwide prices.
Significantly, the RBA pointed to rent inflation remaining low. The RBA noted
that money market rates are higher than the start of the year but have declined
somewhat since the end of June. But they hadn't fed through into higher retail
deposit rates, and while some lenders raised mortgage rates, the average
mortgage rate was still lower than a year ago. The RBA also pointed to
competition for borrowers of high credit quality.
     --The RBA maintained the outlook for GDP growth in 2018 and 2019, citing
support from non-mining business investment and higher levels of public
infrastructure investment. The RBA repeated that outlook for household
consumption remains a source of uncertainty. The RBA added this month that
drought has led to difficult conditions in parts of the farm sector. 
     --The RBA pointed to uncertainty from the direction of international trade
policy in the U.S. but once again only mentioned in terms of global outlook. It
omitted the line on emerging market economies, where last month it said there
have been some strains but largely for country-specific reasons.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$]