MNI PREVIEW: RBA Seen On Hold As House Prices Snap Back

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia will likely leave rates on

hold Tuesday, as house prices firm, although the possibility of further easing

later in the year remains firmly on the table.

     Official rates are at a record low 1% following 25-basis-point cuts in both

June and July, which appear to have ended a housing market decline.

     CoreLogic data Monday showed housing prices in Sydney increased by 1.5%

last month, with Melbourne prices higher by 1.3%, after both experienced double

digits falls over the last two years. On average, prices in state capitals were

up 0.8%.

     The RBA pointed to a bottom in the property market around two months ago.

Governor Philip Lowe last weekend said central banks "risk pushing up asset

prices" through rate cuts.

     A housing pick-up comes despite a faltering performance elsewhere in the

economy, with weak growth -- GDP data this week is expected to confirm a

slowdown -- perhaps arguing for further rate cuts and even additional policy

moves.

     The RBA will hope the housing improvement boosts consumer confidence and

the labour market, without inflating a new price bubble. This will take time to

play out, putting policy on hold for now.

     -RUNNING LOW ON AMMUNITION

     The recent RBA Statement on Monetary Policy and public appearances by Lowe

and Deputy Governor Guy Debelle have articulated a dovish stance and held out

the likelihood of more rate cuts.

     In the event of a further deterioration in the economy, rates could drop to

between zero and 0.5%, Debelle said last week.

     The Bank is aware it is running out of conventional ammunition and has

reviewed "unconventional" alternatives, which MNI understands would involve a

package of measures including Quantitative Easing.

--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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