MNI PREVIEW: RBA Christmas Cut Unlikely Despite Weak Data

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia is set to leave its official

cash rate on hold at its final 2019 Board meeting next Tuesday, reasoning that

while there may be a case for a further cut, such a move might sap confidence.

     The RBA left rates unchanged at a record low 0.75% in November. Accepting

that further easing could be justified by weak data and prepared to cut again if

necessary, the central bank is concerned it might send too pessimistic signal.

     Minutes of the November meeting showed the Bank as waiting to assess the

impact of its last three cuts on the economy, with a view that a "gentle turning

point" has been reached under current policy settings.

     Even so, RBA Governor Philip Lowe conceded in a speech this week that any

progress towards the Bank's targets on inflation and full employment is likely

to be slow.

     --2020 VISION

     The RBA Board has no meeting in January, but expectations are strong that

the Bank will cut again when it meets in either February or March 2020.

     Lowe said in his speech Tuesday that the RBA would consider quantitative

easing, in the form of purchasing government bonds, if official rates fall to

0.25%. Given it has been cutting in increments of 0.25%, this leaves the Bank

just two cuts away from QE - although the governor was categoric is saying such

a move was not currently on the agenda.

     While the RBA has talked up positives, such as a recovery in housing

prices, economic data continues to be soft and this is likely to be reinforced

by GDP data due on Wednesday, the day after the Board meets.

     Annual growth of 1.6% is expected for Q3, well below RBA forecasts of 2.25%

for 2019 and 3% for 2021.

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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