MNI PREVIEW: RBA Set To Keep Rates On Hold, Eye GDP Data

By Lachlan Colquhoun

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

unchanged at a record low 1.5% Tuesday, with Board members eyeing the upcoming

fourth quarter GDP data for clues as to the future direction of policy.

     Expectations that policy will flow through to job creation, higher wages

and ultimately inflation had seen the RBA calling for an eventual rate hike, but

their language has become more ambiguous lately following evidence of a slowing

domestic economy.

     The Q4 GDP data, due Wednesday, are expected to show a further slowing of

the economy, and a weak number will give the RBA further cause to consider a

change in policy and maybe a rate cut later this year.

     --LOWER GROWTH

     The February Statement on Monetary Policy saw the RBA downgrade its growth

forecasts, slashing the June 2019 estimate from an annualised 3.6% to 2.4%,

noting the recent numbers meant that the balance of probabilities between a rate

cut or rise had "shifted to be more evenly balanced than previously."

     Some analysts expect Q4 q/q GDP to come in as low as 0.2%, making even the

revised RBA forecasts appear optimistic.

     Although growth is important to the RBA, its focus is on wages, employment

growth and inflation. The labour market is the domestic economy's hot spot, but

this has not impacted on inflation, with the RBA forecasts also downgraded to

1.4% for the June 2019 quarter.

     This is significantly lower than the RBA's 2% to 3% target range, the point

at which the Bank has said it would consider a rate increase.

     --HARPER VIEW

     Last week, RBA Board member Ian Harper told MNI his personal view was that

a stronger labour market mean there would be "no case" for a rate cut.

     "But if the labour market remains strong, then the next move is up rather

than down, even though such a move may be some way off," Harper said.

     Harker's more upbeat views are tempered with the caveat that any rate hike

is likely only in the medium to long term as the direction of the economy

becomes clearer.

     This points to rates being kept on hold in March, with the Bank prepared to

wait for as long as it needs to understand which way the economy is headed, and

what the most appropriate rate policy should be in response.

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

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

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