MNI POLICY: RBA Waits On Inflation To Trigger Rate Hike

--RBA Warns If Inflation, Jobs Develop As Forecast, Rates Will Rise

--Global Growth Outlook Positive, But Protectionism A Risk

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia has re-affirmed it sees no

need for a near-term rate hike, although it signalled increasing employment

could fuel domestic inflation down the line, prompting a change in its stance.

     The RBA's latest Quarterly Statement on Monetary Policy, published Friday,

states that the Board "does not see a strong case in the near term" to adjust

official interest rates, which have been at a record low 1.5% since August 2016.

     However, they underlined that if the economy develops as expected, rates

will likely rise at a future point.

     "The Board is expecting further progress in reducing unemployment and

ensuring inflation is consistent with the target," the statement said.

     "If that progress is made, higher interest rates are likely to be

appropriate at some point."

     --GRADUAL MOVES

     Any move, the statement says, is likely to be gradual. Inflation is

currently running at 1.9%, below the Bank's preferred range of 2 to 3%, and the

unemployment rate is also declining, now at 5.0%.

     The low inflation figure, however, was impacted by changes in child care

funding and the Bank expects 2019 data to move higher, consistent with upgraded

forecasts for GDP growth, at an average 3.5% over 2019, and for the labour

market.

     The Bank says it is paying "close attention" to trends in domestic wage

growth and household spending as the main drivers for changing its stance on

interest rates.

     "A gradual pick-up in wages growth is expected as the economy continues to

improve and is likely to be necessary for inflation to be sustainably within the

target range," the statement says.

     "There remains considerable uncertainty about how soon and how quickly this

might occur."

     Although household spending was been growing steadily for some time and is

expected to continue to do so, the RBA Board is aware of the slow growth in

household incomes and the impact that is having on spending in an environment of

high debt and falling house prices.

     The current "stimulatory interest rate setting" had supported the economy

and had resulted in progress towards full employment, a milestone which could be

reached next year.

     --OFFSHORE RISKS

     Although positive on the global economic outlook, the RBA has warned of the

impacts of a trade war between the U.S. and China, which was already "weighing

on export orders for some economies."

     "The possibility of trade protectionism escalating further presents a

significant downside risk to global growth, especially if tensions spread to

involve other economies or if business investment decisions are affected," the

RBA statement said.

     Growth in China had slowed over the past year, particularly in the

industrial sector, but some of this was due to "targeted" Government policies to

contain risk.

     Growth was also expected to be slow for Australia's other major trading

partners, the QMPS said.

     Regional growth, although strong in 2018, could also be negatively impacted

by trade tensions because of the position of Asian economies in global supply

chains.

     --TRADE TERMS

     Prices of energy, in particularly for liquefied natural gas (LNG) and

thermal coal, had been major factors in Australia's terms of trade continuing

"to exceed earlier expectations."

     While this could be expected to continue for the next few quarters,

Australia's terms of trade were expected to decline, "as commodity prices

moderate and global prices of imported goods pick up along with global

inflation."

     "However, this adjustment is now expected to take a bit longer than

previously thought," the RBA statement said.

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