MNI PREVIEW: RBA Seen On Hold, Awaits Gov't Budget Statement

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia is set to leave interest rates

on hold at a record low 1.5% Tuesday, as it awaits the 2019 government budget

statement due later that day to see whether the domestic economy receives a

fiscal boost.

     RBA Governor Philip Lowe has pointed to weak spending as a key issue for

the economy and any incentive for consumers could provide the kind of spark to

play into the Bank's more optimistic outlook.

     At present, the RBA says the next move in interest rates is more evenly

balanced between up or down, although not expected at any time in the immediate

future, a shift from last year's outlook that saw the next move to eventually be

higher. 

     --GOVERNMENT GIVEAWAY

     The Canberra government will publish its FY19/20 budget on Tuesday evening,

armed with a likely A$4.6 billion surplus and, facing an national election as

early as May, is expected to announce a number of new fiscal measures.

     The Government has already legislated tax cuts worth A$144 billion over six

years, but may either deepen those cuts or bring them forward to accelerate

their impact. Pensioners may get one-off payments to help offset high

electricity bills, while other measures could provide boosts for small

businesses and communities affected by the prolonged drought.

     With a potential election just six weeks away, these measures are more

political than economic, but could provide a fiscal boost to the economy just as

growth begins to slow.

     --SLOWER GROWTH

     GDP growth slowed to 2.3% in the fourth quarter of 2018, below the already

adjusted RBA forecast of 2.8% and the economy entered into a "per capita"

recession, shrinking for the second consecutive quarter. The Bank expects GDP to

pick up to 2.4% for the June quarter and 3.0% by the end of the year, but its

recent forecasts have consistently overshot the data.

     Current opinion polls suggest Australia could have a change of Government

in May, with the Labor Opposition tipped to win power. Their economic policy is

centred around providing wage increases, so regardless of the outcome, Australia

can expect some degree of fiscal stimulus this year.

     With the political situation so fluid and and the economy in an uncertain

period, the RBA is unlikely to move on rates, likely to keep them where they

have been since November 2016.

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

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$,MX$$$$]