MNI RBA Lowe: Cash Rate Steady While Jobs, Infl Make Progress

--Steady RBA Cash Rate To Be Source of Stability, Confidence To People

--Lowe Reiterates Next Move In Interest Rates Will Be Up

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia plans to keep the cash rate

steady and thus aim to be a source of stability and confidence to the people

while the economy makes gradual progress towards the full employment and

inflation goals, Governor Philip Lowe said Tuesday.

     Lowe's comments suggest the RBA will leave the cash rate at 1.5% for longer

which dismisses possibility of a rate hike by the end of this year.  

     But Lowe also reiterated that the next move in interest rates will be up

and that there was not a strong case once again for a near-term adjustment in

the cash rate, which indicate prospects of a rate hike early next year still

remain.

     Lowe made the comments at the board dinner in Adelaide following meeting

earlier Tuesday where the RBA left the cash rate on hold for the nineteenth

meeting in a row.

     "Our central scenario is for a gradual pick-up in wages growth, a gradual

lift in inflation, and a gradual reduction in the unemployment rate," he said.

     "The Board's view is that while this progress is occurring, the best

contribution we can make to the welfare of the Australian people is to hold the

cash rate steady and for the Reserve Bank to be a source of stability and

confidence," he added.

     If things turn out as expected, "it is reasonable to expect that the next

move in interest rates will be up. This would reflect conditions in the economy

returning to normal," Lowe said.

     RISKS MOSTLY INTERNATIONAL

     He said the risks to the general outlook lie largely in the international

arena which include possible escalation of protectionist measures in the U.S.

and elsewhere, and the management by Chinese authorities of the significant debt

build-up in their economy.

     Domestically, the RBA will be watching carefully the developments in the

money market caused by rise in U.S. dollar funding rates, and a possible

tightening in lending standards in the context of the current high level of

public scrutiny.

     The RBA expects the rise in money market rates to reverse in time but is

unsure by how much and when they will occur.

     UPBEAT ABOUT ECONOMY, INFLATION

     Lowe's comments about the economy were mostly upbeat. The pulse of the

Australian economy is stronger than a year ago, he said. The economy is expected

to grow a bit faster than 3% this year and the next, which would be a better

outcome than the average of recent years and will help in reducing spare

capacity and unemployment, he added.

     "If we are able to achieve this, we will make inroads into the remaining

spare capacity in the economy and see a further modest decline in the

unemployment rate," Lowe said.

     On inflation, Lowe said the Q1 inflation data was in line with the RBA's

expectation and provided further confirmation that inflation has troughed.

     Lowe reiterated wage growth remains important to inflation outlook but as

wage growth has troughed, the expectation is for a further pick-up.

     "Inflation is expected to remain low, at around its current level for a

while yet, before gradually increasing over the next couple of years, towards

2.5%," he said.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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