Australia central bank seen on hold even as tough budget looms

Sun May 4, 2014 9:34pm EDT
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By Ian Chua

SYDNEY (Reuters) - Australia's central bank is almost certain to maintain a neutral policy bias this week with a batch of data likely to point to an economy that is picking up speed, uncomfortable reading for a government preparing voters for a tough federal budget.

All 25 economists polled by Reuters expect the Reserve Bank of Australia (RBA) to hold its cash rate steady at a record low 2.5 percent and reiterate its vow to keep interest rates unchanged in the months ahead.

"While recent economic indicators have been mixed and inflation was weaker than expected, we believe that the RBA's policy stance is firmly neutral and expect the central bank to leave monetary policy unchanged," Nomura analyst Martin Whetton said.

"Moreover, we think the statement will continue to suggest that the RBA is not considering any changes to its policy stance and will very likely reiterate that 'the most prudent course is likely to be a period of stability in interest rates'."

The RBA will get another chance to hammer that message home on Friday when it releases its quarterly statement on monetary policy.

Data this week including retail sales and employment should underpin the RBA's relatively sanguine outlook on the economy.

Analysts expect retail sales to rise for an eleventh straight month in March with first quarter sales up a solid 1.5 percent from the previous quarter.

Such an outcome will be a welcome boost as the A$270 billion retail sector, which accounts for 17 percent of Australia's A$1.5 trillion annual gross domestic product. It is also the second-biggest employer after the health industry, providing 10 percent of all jobs.   Continued...

A man is reflected in the Reserve Bank of Australia (RBA) building in Central Sydney December 2, 2008. REUTERS/Daniel Munoz