REPEAT: MNI POLICY: RBA Lowe Sees 2019 Rate Rise "Unlikely"

Repeats Story Initially Transmitted at 03:19 GMT Mar 6/22:19 EST Mar 5

--No Housing Apocalypse Seen, Concern Over Wealth Effect

By Lachlan Colquhoun 

     SYDNEY (MNI) - Reserve Bank of Australian Governor Philip Lowe all but

ruled out an interest rate rise this year as the latest domestic GDP data

presented further evidence of the faltering economy.

     Lowe told a Sydney audience that "it's hard to think of a scenario where

interest rates would need to go up this year." His comments came shortly before

the release of fourth quarter GDP data showed only modest growth of 0.2% on

quarter.

     "Inflation pressures are very benign, wages growth remains low, and the

current rate of wage growth is unlikely to generate an inflation rate of 2.5%,"

Lowe said in response to audience questions.

     --HOUSE PRICE FALLS

     Addressing the issue of Australia's rapidly cooling housing market, Lowe

said price falls of around 10% in Melbourne and Sydney over the last 12 months

were "unusual but not unprecedented", but said the Bank was concerned about

their impact on consumer spending.

     The sharp increase in house prices from 2014 to 2016 had been fuelled not

by speculation but by supply and demand, while the current downturn was not a

slump but a correction as supply and demand rebalanced.

     Lowe said the RBA had sought to understand the "wealth effect" on the wider

economy from fluctuations in house prices.

     --WAGES

     The RBA Governor repeated his view that the main issue in the domestic

economy was sluggish wages growth, which was persisting and becoming "harder to

ignore."

     "Expectations of future income growth have been revised down and it is

likely that this is affecting spending," Lowe said.

     He said a combination of stagnant wages growth with the "wealth effect"

from the housing price falls were proving a drag on consumption.

     "My conclusion here is that wealth effects are influencing consumption

decisions, but they are working through expectations of future income growth,"

Lowe said.

     "Swings in housing prices and turnover in the housing market are also

having an effect, but they are not the main issue."

     --SLUGGISH GROWTH

     Today's GDP data showed that the Australian economy grew at an annualised

2.3% in the December quarter, following 2.8% in Q3 2018 and 3.3% in Q2.

     The RBA, which last year forecast growth of "around 3.5%" throughout 2019,

recently revised its growth forecasts down to an annualised 2.4% for the June

quarter, and 3.0% by December this year.

     The Bank's outlook throughout 2018 was that the next move in interest rates

was likely to be up, but it has adopted a more balanced view as the economy has

slowed.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com