REPEAT: MNI SoP: Mostly Quiet RBA As Downside Risks Grow

Repeats Story Initially Transmitted at 06:22 GMT Jul 2/02:22 EST Jul 2

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