MNI PREVIEW: RBA Expected To Cut Rates, But Move Not A Given

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia is expected to cut rates by

25bps when it meets Tuesday although such a move is not a given, with Governor

Philip Lowe saying this week that all the evidence would be weighed before a

decision is reached.

     Financial market pricing is suggesting a 70% likelihood of a cut next week,

and if it materializes, given that that the RBA historically cuts in increments

of 25bps, would leave the Official Cash Rate at a fresh all-time low 0.75%.

     The RBA cut rates in June and July down to a current low 1%, and the Bank

has been open in saying that more cuts may be required to stimulate the economy,

particularly in the absence of any strong fiscal policy.

     The speech by Lowe this week was expected to provide some guidance on the

Bank's intentions, and although he repeated his dovish outlook, he offered no

specific hints on next week's move, saying the RBA would "again take stock of

the evidence" when it meets to make its decision, repeating that "further

monetary easing may well be required" to make progress in reducing unemployment

and achieving the RBA inflation target.

     Unemployment rose in August to 5.3%, even though employment grew by more

than 30,000, while inflation is at 1.6% against a target of between 2% and 3%.

Job vacancy data this week showed that vacancies had fallen for the first time

in five years, suggesting that unemployment may continue to rise.

     --EXTENDED PERIOD

     Although Lowe repeated the view that Australia was set for an "extended

period of low interest rates," he also noted signs of economic recovery due to

the impact of lower rates, a stabilised housing market, strong exports and

infrastructure investment.

     "Looking forward, there are some signs that, after a soft patch, the

economy has reached a gentle turning point," he said.

     "We are expecting a further modest pick-up in the quarters ahead."

     The issue for the RBA next week is whether they wait on more macro-economic

data to confirm signs of this recovery, or if they move ahead of the curve with

another cut.

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

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