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RBA Lowe's Speech: Will it be About Rates or Econ Prospects?

By Sophia Rodrigues
     SYDNEY (MNI) - The Reserve Bank of Australia Governor Philip Lowe's speech
later Thursday is generating a lot of anticipation as the topic "The Next
Chapter" has led to speculation whether he would talk about prospects for rate
rises ahead.
     Such speculation cannot be entirely dismissed given the upbeat tone in
recent RBA communication, in particular Lowe's comment on the evening of
September 5, hours after the RBA's cash rate decision. Lowe said that as the
economy makes "further progress on both unemployment and inflation, we could
expect the cash rate to move towards this (3.5%) neutral rate over time."
     Lowe will be speaking in Perth to the American Chamber of Commerce in
Australia business briefing at 1310 hours Sydney time (0310 GMT)
     Assistant Governor for economics Luci Ellis' speech Wednesday is the most
recent example of the recent optimistic message from the RBA, when she said the
turning point in the pickup of the global economy was around the end of last
year and that is positive news for the Australian economy.
     The money market has picked up this optimism and pushed up pricing for cash
rate expectations, with nearly 80% chance of a 25bps hike now priced in for May
2018. Analysts at three of the four big Australian banks are now forecasting at
least one cash rate hike next year, and at least three economists in an MNI poll
see the first hike coming as early as Q1 of 2018.
     Given the cash rate is the only tool at the disposable of the RBA, it is
not surprising that there is lot of reliance placed on "open mouth operations"
to shape expectations. To that extent, it also wouldn't surprise if Lowe used
the speech to provide more clarity, including endorsing or toning down
     At the same time, it is entirely likely that the next chapter that Lowe
will talk about has to do with the growth outlook for the economy, with more
discussion on the next growth drivers both locally and globally. India may find
a mention, too.
     Such a presentation would be in line with speech delivered by former
governor Glenn Stevens in November 2015 entitled "The Long Run". 
     Given the location of today's speech, one shouldn't dismiss the possibility
that Lowe would update on the "After the Boom" speech given by Stevens in Perth
in December 2015.
     "I expect that, in a few years' time, the Reserve Bank Board will once
again meet in Perth. I imagine that, by then, the current contraction in capital
spending will probably have reached an end. New opportunities for growth will
have emerged, resulting from things like the growth in the middle class of Asia,
with all what that means for demand for services as well as for energy and
agricultural production. The growth of India is surely also a potential
opportunity for (Western Australia) - facing as you do the Indian Ocean, and
with the advantage of relative lesser distance. A mere eight hour flight time!
No doubt Western Australians will be looking to seize those opportunities,"
Stevens said in that speech.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$]

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