REPEAT: MNI STATE OF PLAY: RBA Growth Optimism Up a Notch

Repeats Story Initially Transmitted at 04:11 GMT Dec 5/23:11 EST Dec 4

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia left the cash rate unchanged

on Tuesday, as widely expected, painting a more positive picture of the economic

outlook by projecting that third quarter growth would be around its trend rate

while the non-mining business investment outlook had improved further.

     The RBA also appeared slightly more optimistic about prospects for wage

growth, in its statement announcing its rate decision. However, it retained its

key concern about the outlook for household consumption, which has more bearing

on the monetary policy outlook, reinforcing the view that the policy is likely

to remain on hold for longer.

     The cash rate was left at 1.5% for the 15th meeting in a row.

     There were interesting tweaks in the statement's language but none were

unexpected. 

     There was a change in the paragraph on the Australian dollar, with the RBA

noting the exchange rate remains within the range of the last two years. But

more significant for the market was the fact that the RBA continued to warn that

"an appreciating exchange rate could be expected to result in a slower pick-up

in economic activity and inflation than currently forecast."

     Following a better-than-expected report on private capital expenditure

published by the Australian Bureau of Statistics last week, it wasn't surprising

to see the RBA mentioning that the "outlook for non-mining business investment

has improved further." An improvement in the outlook for non-mining business

investment represents an upside risk to the RBA's forecasts published in the

November Statement on Monetary Policy.

     The RBA also said that growth in the third quarter was likely to be around

its trend rate based on recent data. The Q3 GDP is due on Wednesday and the MNI

survey median forecast currently stands at +0.7% q/q and +3.0% y/y.

     One addition in the statement's language on the labor market noted that

some employers were finding it more difficult to hire workers with the necessary

skills. The comment suggests the RBA is slightly more confident about prospects

for wage growth, though it reiterated that low wage growth is likely to continue

for a while yet.

     The commentary on the global economy was unchanged from November but one

change was seen in the discussion on China, with the RBA noting that financial

conditions had tightened somewhat as authorities there address the medium-term

risks resulting from high debt levels.

     There was little change in the commentary on the housing sector, indicating

the RBA continues to watch the market closely. While the central bank's overall

concern has eased, it remains worried that the rise in housing debt continues to

outpace the slow growth of household income.

     The outlook for policy was unchanged, with the RBA repeating the commentary

that "the low level of interest rates is continuing to support the Australian

economy" and "taking account of the available information, the board judged that

holding the stance of monetary policy unchanged at this meeting would be

consistent with sustainable growth in the economy and achieving the inflation

target over time."

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