REPEAT: MNI: RBA MonPol Intact Even If Mortgage Rise Prevalent

Repeats Story Initially Transmitted at 06:41 GMT Sep 4/02:41 EST Sep 4

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia isn't fretting about a

recently announced mortgage rate rise from a leading bank, or the possibility

that other banks may follow suit, MNI understands, as this would only reverse

declines seen in the past year and not result in any net tightening.

     There is no question of the RBA considering a lower cash rate to offset the

increase in mortgage rates faced by households. Should mortgage rates rise above

levels seen last year, it still doesn't mean the RBA would bring rate cut to the

table. 

     Any decision to consider a cash rate lower than the current 1.5% will be

based on how far mortgage rates rise and whether it is impacting household

consumption, and through it the overall prospects for the economy.

     --OFFSETS DECLINES

     Westpac is, to date the only one of the big banks to announce a hike in its

variable mortgage rate, which came alongside increases for several other home

loan products. The other three big banks haven't yet announced similar moves,

although there is an expectation they might do so in coming weeks.

     In the cash rate statement released Tuesday, the RBA acknowledged that some

lenders have increased mortgage rates by a small amount, but noted the average

mortgage rate paid remains lower than a year ago. All lenders would have to

raise mortgage rates by around 10-15 basis points to offset the declines in the

past year.

     --FIRM ON GUIDANCE

     Unlike some in the market, 

     the RBA doesn't think there have been any significant developments in the

past month to trigger a change its guidance that the next move in the cash rate

will be up. This means Governor Philip Lowe is likely to reiterate the guidance

when he speaks at the board dinner later Tuesday. The guidance is also likely to

be reiterated in the minutes from this board meeting on Sept 19.

     The RBA remains of the view that the economy is progressing in line with

its forecasts laid down last month. In particular, the RBA highlighted that

growth in the first half of this year was likely above trend. Second quarter GDP

data is due to be published Wednesday.

     The fall in the jobless rate to 5.3% recorded in the July labor force

survey has also increased the RBA's confidence that the labor market is tracking

at least in line, if not ahead, of its forecasts.

     The RBA is unconcerned over the continuing softening in housing prices,

which it again noted in the cash rate statement, noting also that nationwide

measures of rent inflation remain low. Its view remains the same as expressed by

Governor Lowe in his opening statement at the Parliamentary testimony last

month.

     "It's good news that this adjustment is taking place at a time when global

growth is strong, the Australian labour market is positive and interest rates

are low. All these things are helping with the adjustment in the housing

market," Lowe said then. 

     --DISMISSIVE ON POLITICS

     The RBA is also unconcerned about the recent domestic political

developments, unless it affects business confidence and through that overall

activity in the economy. The Bank doesn't think Australia's recent political

upheavals, which saw a change in Prime Minister, affected the local exchange

rate in any meaningful way.

     The depreciation of the Australian dollar was largely a result of rise in

the U.S. dollar, a trend also felt by most other currencies, the RBA said in

Tuesday's statement. 

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