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MNI (London)
Repeats Story Initially Transmitted at 10:57 GMT Mar 5/05:57 EST Mar 5
--RBA Cash Rate Expected To Be Maintained At 1.5%
By Sophia Rodrigues
     SYDNEY (MNI) - The Reserve Bank of Australia is widely expected to leave
the cash rate unchanged at the March meeting, with key themes relevant to
monetary policy outlook -- wage growth, household debt and household consumption
-- unlikely to change in the one-page statement.
     However, a new inclusion in the statement could be the discussion over the
threat from a trade war. 
     The RBA's cash rate decision is due at 1430 hours (0330 hours GMT) Tuesday
and the unanimous view of both economists and the money market is for the rate
to be left on hold at 1.5% and the neutral outlook maintained.
     Many of the themes on global growth from the February statement are likely
to be repeated on Tuesday, including the above-trend growth in a number of
advanced economies,the pick-up in growth in the Asian economies and continued
growth in China.
     One change to look for is any mention of the latest threat of a trade war.
While it is certain this will be a topic for discussion at the board meeting, it
is unclear if it will find a mention in the statement. If it does, it would
bring a slightly dovish tone to the RBA's broader on-hold message given it's a
clear downside risk for the economy.
     RBA Governor Philip Lowe has on numerous occasions talked about the
importance of open markets for the Australian economy. 
     His latest comments on this issue came in Parliamentary testimony last
month, when he said that openness is key to Australia's economic success.
"That's been the case in the past, and it remains the case in the future. That
has a number of elements (importance of open trade) and Australia has more at
risk here than many other countries from a decline in open markets and an
increase in protectionism."
     "We benefit from foreign capital from the rest of the world, so we've got
to be an attractive place for foreign capital, and people as well. It's been
fundamental to our success to date, and I believe it remains fundamental to our
success in the future," he said.
     On the local economy, the RBA is likely to reiterate the central forecast
for growth to pickup, to average a bit above 3% over the next couple of years.
While there are downside risks to the Q4 GDP forecast, the data will only be
released the day after the board meeting. The RBA may point to an improved
outlook for non-mining investment and reiterate that the outlook for household
consumption is the continuing source of uncertainty.
     The language on wage growth outlook is unlikely to change despite Q4 wage
price index showing a slight acceleration. This is because the RBA is aware of
downward pressure on wage growth from new enterprise agreements that had much
lower wage increases build into them than the one they replace. 
     There is also a risk that another measure of wage growth which will be
published in the national accounts data on Wednesday -- average earnings -- may
be subdued in Q4. The RBA looks at this measure of wages very closely and has
noted that it has been weaker than the wage price index, so the possibility of
another subdued outcome would be disappointing.
     There may be some tweaks in the language on housing prices, given
nationwide price growth slowed further to a 2.2% rise in February from +3.2% in
January, and from +8.0% six months ago. But there is unlikely to be any change
to the broader message that the build-up of risks in household balance sheets
have been contained.
     No change is also expected in the commentary on the Australian dollar, with
the RBA likely to again focus on the trade-weighted exchange rate that has been
little-changed in the past month.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:
MNI London Bureau | +44 203-865-3812 |
MNI London Bureau | +44 203-865-3812 |