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Reserve Bank of Australia unlikely to lift interest rate following weak data

07-04-2011 14:29 BJT

CANBERRA, July 4 (Xinhua) -- Weak retail sale and residential building approvals figures released on Monday reinforced views that not all parts of the Australian economy are sharing the country's mining boom, and majority of Australian economists expected Reserve Bank of Australia (RBA) not to lift interest rate when the board meets on Tuesday.

The Australian dollar dropped and local stocks eased after the Australian Bureau of Statistics showed retail sale fell 0.6 percent in May, lower than the 0.3 percent rise expected by economists.

Residential building approvals also fell 7.9 percent in May, much larger than the 0.5 percent drop economists forcast. And the TD Securities-Melbourne Institute's monthly inflation gauge was flat in June.

The data improves chances the RBA's board will again leave rates on hold at its monthly meeting on Tuesday.

"With these retail numbers it's very hard for them to hike unless it's a real shocker for inflation," Brian Redican, economist at Macquarie Group said in a statement.

"The Reserve Bank was expecting to see the economy regain momentum in the second quarter and there really is no sign of that happening at the moment."

Monday's data came after March quarter gross domestic product ( GDP) figures released in early June, which showed the economy contracted for the first time since the September quarter of 2008, at the height of the global financial crisis. This is due to the recent flooding ravaged the coal mining districts of Queensland state.

Sales were weaker across Australia, with food, clothing and department stores all recording large drop in demand as consumers feel some pressure on living costs, and some taking advantage of the country's strong exchange rate by shopping more online.

Also, data from RP Data-Rismark showed last week that housing prices in the country's capital cities dropped 2.7 percent through the first five months of this year.

In context of all these weak figures, all 10 economists surveyed by Australia Associated Press on Monday said the RBA would keep the cash rate at 4.75 percent on Tuesday.

Commonwealth Bank economist James McIntyre expects the central bank to keep rates on hold, saying that it would give the RBA time to assess whether the economy was recovering from the summer floods, particularly the mining sector, before lifting rates.

"Mainly they are waiting to see those inflation figures (to be released on July 27)," he said in a business note.

Meanwhile, HSBC chief economist Paul Bloxham forecasts the next rate rise will be in August.

He expects the Australian Bureau of Statistics to announce an increased inflation reading for the June quarter on July 27. The March quarter's inflation rate was 3.0 percent, at the upper end of the RBA's two to three percent medium term target range.

"Although recent weaker domestic indicators - particularly softer employment growth and business conditions - provide some risk to this timeframe," Bloxham told Xinhua.

"Nonetheless, we think hikes will be forthcoming and give little credence to the argument that the next move is down.

"The mining investment boom is a massive multi-year story and to stop it there would have to be a significant rout in iron ore and coal prices, which seems unlikely, given continued Chinese demand."

The RBA board has left the official cash rate at 4.75 percent since last lifting it November 2010.

Editor:Wang Xiaomei |Source: Xinhua

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