MNI PREVIEW: RBA Set For Cut, July Move In Play

By Lachlan Colquhoun

     SYDNEY (MNI) - After leaving official interest rates unchanged for more

than two and a half years, the Reserve Bank of Australia could deliver a second

cut in as many months when the Board meets tomorrow.

     The Bank cut rates by 25 basis points to a record low 1.25% in May, and the

minutes from that meeting revealed the Board agreed that "it was more likely

than not" that a further easing in monetary policy would be "appropriate in the

period ahead."

     The issue now is not if the Bank will cut rates further, but when it will

do so.

     The market has been expecting a second interest rate cut in August, but the

Bank's recent language has increased the belief that the next cut will be this

Tuesday. If so, it would the first back-to-back cuts by the RBA since 2012.

     RBA Governor Philip Lowe has been open about the Bank's increasingly dovish

outlook, confirming in several major speeches that more cuts could be needed to

boost the labour market and ultimately consumption spending.

     Lowe has said that it is "unrealistic to expect that lowering interest

rates by a quarter of a percentage point will materially shift the path we look

to be on."

     --FISCAL STIMULUS

     MNI understands that the RBA is looking to the Federal Government to enact

fiscal stimulus, and that senior RBA figures have met with independent Senators

whose votes will be crucial to the passage of the Government's A$158 billion tax

cut package, set to be introduced into the new Parliament this month.

     As the RBA waits to see the impact of its cut the flow of disappointing

economic news has continued, with the RBA revealing that the percentage of

borrowers in arrears on their home mortgages had risen to the level of 2010,

just after the Global Financial Crisis.

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

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