MNI RBA STATE OF PLAY: On Hold, Eye on Hsg, H'Hold Debt Update

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia is expected to leave its cash

rate unchanged at 1.5% on Tuesday, with the overall tone its policy statement

little-changed. 

     The only key changes are likely to be commentary on the housing market and

household debt.

     The outcome will be in line with the unanimous view of both the economists

and market players expectation for the cash rate to be left on hold for the

thirteenth straight meeting. For the first time in a long time, economists are

also unanimous in their view that the 1.5% cash rate is the low point for this

cycle.

     The cash rate decision is due at 1430 local time (0330 GMT).

     Many expect the cash rate to be raised in 2018, with a few expecting the

first hike as early as first quarter. But there are some who expect the rate to

remain on hold even through the end of 2019, Westpac and JP Morgan among them.

     Between the last cash rate statement in September and the next one Tuesday,

there have been two speeches by Governor Philip Lowe and one by Assistant

Governor for Economics Luci Ellis. The speeches and the Q&A have all conveyed

the RBA's upbeat view on recent data releases and the outlook for the economy.

     So there's little new that could be expected from the cash rate statement,

apart from a more positive comment on employment growth and the worry on the

outlook for household consumption.

     One paragraph that could see a change is the one related to the housing

market and household debt, because the board meeting will also include a

discussion on financial stability ahead of the release of half-yearly Financial

Stability Review on October 13. 

     The RBA may express satisfaction with the response of the housing market so

far to tightening of lending standards by the Australian Prudential Regulation

Authority. But it may reiterate that growth in housing debt has been outpacing

the slow growth in incomes.

     The commentary on global growth and markets is expected to remain

unchanged.

     On the domestic economy, the statement is expected to confirm GDP growth in

the second quarter was in line with its expectation and repeat that the RBA

still expects growth to average around the 3% mark over the next several years.

     The comments on employment growth will remain upbeat and maybe mention that

the participation rate has increased, which is another positive. But the RBA may

also point to the elevated underemployment rate, which indicates continued slack

in the economy and highlights the concern that a wage growth pick-up will be a

gradual process.

     No change is likely to the statement's concluding paragraph: 

     "The low level of interest rates is continuing to support the Australian

economy. Taking account of the available information, the Board judged that

holding the stance of monetary policy unchanged at this meeting would be

consistent with sustainable growth in the economy and achieving the inflation

target over time."

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

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