REPEAT:RBA Lowe: Lower Infla On Administered Prices Good News

Repeats Story Initially Transmitted at 02:42 GMT Aug 17/22:42 EST Aug 16

--RBA Has No Plans To Change Inflation Target, Lowe Says

By Sophia Rodrigues

     SYDNEY (MNI) - The slowing in inflation due to administered prices is

helpful in alleviating cost of living pressures for households and is good news

even if it means inflation is likely to remain lower for longer, Reserve Bank of

Australia Governor Philip Lowe said Friday.

     Lowe was answering questions from the House of Representatives Standing

Committee on Economics.

     Lowe's comments are in line with MNI Analysis published Thursday that the

RBA's calmness despite downgrading near-term inflation forecast, is due to

optimism that lower inflation due to declining administered prices will provide

a boost to household consumption.

     Lowe said that lower inflation due to slowing in administered prices isn't

a sign that the economy is doing poorly or there is lack of pricing pressures

but it is decision made by the government to alleviate cost of living pressures.

"People have more money to spend on other things and that creates more demand in

the economy."

     "It is an unambiguously good news even if inflation remains a bit lower for

bit longer," he added.

     --INFLATION TARGET

     In reply to another question, Lowe talked about recent discussions in the

media that the RBA should lower their inflation target.

     Lowe's answer once again was in line with MNI Analysis published earlier

this week that the RBA has no plans to review inflation target. He reiterated

that the RBA is committed to delivering "two point something" average inflation

over time.

     --CASE FOR RATE CUT

     Lowe was asked a question about the domestic scenario in which the RBA

would consider lowering the cash rate. This question was triggered by a reply by

Lowe at the Anika Foundation event last week where MNI asked a question about

what the RBA would do if the economy doesn't progress as they expect.

     Lowe said global risks that would lead to a cut would mainly include

something going wrong with China, and it spreads to East Asia, and affects

commodity prices and confidence. "It is low probability event but possible."

     Lowe said it is much harder to think of a domestic shock that would lead

sharp slowing in the economy. The most likely scenario but a low probability one

is if housing prices fall sharply, and it affects household spending and

confidence.

     "It is possible but unlikely," he said.

     --UNCONVENTIONAL POLICY

     Lowe said if there was a bad shock and the cash rate here reaches "whatever

the lower bound was" the RBA has prepared a contingency plan.

     The RBA has looked at experience of other countries where the central banks

have bought assets from the private sector including government securities and

other assets.

     The RBA has also looked at terms and conditions under which it would

provide funding to the banking sector so they can continue to provide credit to

the real economy, Lowe said.

     --AUSTRALIAN DOLLAR

     On the exchange rate, Lowe said a "moderately lower" currency would help

inflation and employment.

     He also said that it would be "problematic" if the Australian dollar

depreciates in a crisis environment. But outside that depreciation would be

helpful, he added.

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