REPEAT:MNI STATE OF PLAY:Upside RBA Investment Narrative Risk

Repeats Story Initially Transmitted at 05:47 GMT Dec 4/00:47 EST Dec 4

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia is expected to leave the cash

rate unchanged for the 15th meeting in a row, with the accompanying statement

expected to be similar in most respects to the month before.

     The RBA's cash rate decision is due Tuesday at 14:30 local time (0330 GMT).

All economists in an MNI survey and virtually all market players expect the rate

to be left unchanged at 1.5%.

     The overall statement could appear a bit more positive than October because

any new discussion would center around the growth outlook and non-mining

business investment. But that doesn't mean the slight downside risk to monetary

policy has diminished.

     One key change in Tuesday's statement could be comments about growth, as

the RBA may appear more confident about the forecast it made last month for

economy to pick up and growth to average around 3% over the next few years. The

more important change could be on non-mining business investment, where the RBA

could note the recent improvement and point to further upside risk.

     The main offset is likely to come from continued concerns about outlook for

household consumption and low inflation.  

     The RBA may point to lower-than-expected Q3 wage price data but express

confidence about prospects for a pickup in wage growth as the labor market slack

declines. Indeed, given Governor Philip Lowe has admitted that managing wage

expectations is one of the strategies he is following, it is likely the RBA

could repeat the line that "stronger conditions in the labor market should see

some lift in wage growth over time."

     The commentary on inflation is likely to be truncated given there has been

no fresh inflation data. The RBA can be expected to reiterate its view that the

"central forecast remains for inflation to pick up gradually as the economy

strengthens."

     These comments might, however, mask the concerns the RBA has about a wage

pickup even as the unemployment rate moves closer to full employment, and the

extent wage gains pass through to overall inflation. How wage inflation develops

may play a bigger role in how monetary policy evolves in the coming year and,

for now, risks still remain slightly to the downside.

     The RBA is likely to maintain its narrative on the Australian dollar

despite recent weakness. Any further fall in the exchange rate would be a

development the RBA welcomes and therefore it will remind that "an appreciating

exchange rate could be expected to result in a slower pick-up in economic

activity and inflation than currently forecast."

     There's unlikely to be any change in the discussion on the housing market

or the global economy. 

     The last paragraph is expected to be left intact: "The low level of

interest rates is continuing to support the Australian economy. 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