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MNI (London)
By Sophia Rodrigues
     SYDNEY (MNI) - Downside risks to the Australian economy have increased
further in the past month and the Reserve Bank of Australia may make further
downward tweaks to their statement but will maintain the core view that it
expects further progress in reducing unemployment and having inflation return to
target.
     The RBA's preference is likely to be to wait on the sidelines and watch
both local and global developments, rather than commenting amid the
uncertainties. In a few weeks, the RBA will re-assess its outlook for the
economy for its quarterly Statement on Monetary Policy, due early August, and
that will provide an opportunity to revise the outlook if needed.
     The RBA's cash rate decision is due at 1430 local time Tuesday (0430GMT).
The cash rate is widely expected to be left untouched at 1.5% for the
twenty-first straight meeting.
     --WHEN IN DOUBT, SAY NOTHING
     According to the calendar of events published by the RBA, there is no
speech scheduled by Governor Philip Lowe or his deputy until after August's
board meeting. While this may not be intentional, it is fortuitous, as it
ensures there is no pressure to comment on emerging risks.
     RBA's head of economic analysis Alexandra Heath is due to speak on
Thursday, but it is unlikely she will wander too much from the core outlook on
unemployment and inflation.
     --BAR JOBS, MOST DATA WEAKENS
     Since the June board meeting, two big positives have been the strong GDP
growth in the first quarter and a fall in the unemployment rate.
     The RBA's main focus is on the labor market, so the fall in the jobless
rate allows it to remain optimistic that the economy is making progress towards
unemployment and inflation goals.
     Other data, however, have been mostly weak. Housing prices have weakened
further, with a reduction in housing activity. Business confidence and
conditions eased in May, housing finance data has continued its softening trend,
and earlier Monday ANZ job advertisements data showed a fall to the lowest level
since year and a fall in trend growth to a 2-1/2 year lows.
     Funding costs have increased for banks and some smaller lenders have raised
their mortgage rates. If the pressure on funding costs persist, there is a risk
of a broad-based increase in mortgage rates. 
     --CHINA GROWTH RISK
     Globally, there is plenty of uncertainty from trade developments and how it
would impact China's growth mix. Developments in emerging market economies also
remain a risk because growth could get affected as the countries' raise interest
rates to curb the downward pressure on their exchange rate.
     All these developments have the potential to change the RBA outlook. But
for now, it is likely to only point to it and not attempt to quantify the risk
until it has greater clarity.
     So apart from small downside tweaks on the housing market, and on global
trade, the RBA is unlikely to veer from the June cash rate statement. 
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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