REPEAT: MNI STATE OF PLAY:RBA Unlikely Swayed By Negative Risk

Repeats Story Initially Transmitted at 05:30 GMT Sep 3/01:30 EST Sep 3

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia is unlikely to be swayed by

recent negative developments relating to political uncertainty and a risk of

wider mortgage rate rises, instead focusing on stronger economic data that

supports its gradual progress narrative for the economy.

     The one-page statement following Tuesday's board meeting is likely to err

towards a positive tone, signalling a hold stance for monetary policy, with a

continuation of the guidance that the next move in interest rates is more likely

to be up expected to be recorded in the meeting minutes due Sep 18.

     The cash rate is expected to be left on hold at 1.5% for the twenty-third

consecutive meeting.

     --POLITICAL UNCERTAINTY

     Local politics is a key emerging risk in Australia following the recent

leadership change that saw ex-Treasurer Scott Morrison replace Malcolm Turnbull

as Prime Minister. 

     Initially it appeared that the change has removed considerable political

uncertainty until the next election that must be held by May 2019. However,

reports of continuing divisions within the Liberal party and overall negative

coverage of the political landscape leaves the outlook cloudy, leaving the

Australian dollar on a downtrend, with local politics among reasons contributing

to the decline.

     Australia has been witness to much political drama in recent years, with

six prime ministers in a decade. Markets have been largely immune to change, but

this time may be different. 

     The main risk is a hit to business confidence, currently at elevated levels

and seen as a key reason for the RBA's positive outlook on the economy. 

     With the RBA unlikely to comment directly on political risk, simply

bunching it under the various uncertainties to the outlook, impact on monetary

policy appears limited for now. 

     --MORTGAGE RATE RISE

     The risk of widespread mortgage rate rises have increased following

Westpac's surprise 14 basis point hike in its variable loan rates, along with

increases for several other mortgage products. The other three big banks have

yet to announce similar moves and the RBA is unlikely to react to just one such

announcement.

     Even if other big banks were to lift their mortgage rates, the RBA may not

react until it assesses how the hikes are impacting both the housing market and

household consumption. For now, the RBA will take comfort from the fact that the

easing in housing market activity has been orderly and it was long overdue. The

central bank will again point out that the average mortgage rate paid remains

lower than a year ago.

     --LABOR MARKET OUTLOOK

     The overall statement is likely to be little-changed from August, with the

main positive being the fall in the jobless rate to 5.3% in July and a slight

acceleration in wage price index.

     The Q2 business indicators data also showed wages and salaries rose 1.2%

q/q compared with a 0.9% rise in Q1. As a measure of wage bills, this points to

a rise in household income.

     The RBA is also likely to state that recent data have been consistent with

the central forecast for GDP to be a touch above 3% in 2018 and 2019.

     --LOWE SPEECH

     If there's any acknowledgment to evolving negative risks, Governor Philip

Lowe may mention it during Tuesday's board dinner speech.

     Any change in the RBA's current guidance would be a big shift and Lowe may

not be wanting go there yet. However, he might be prepared to highlight the

conditionality for the guidance.

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