Why interest rates should not rise, page-12

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    Timing of the announcement is 9.30am, Wednesday, with the first AAP wire reports expected by 9.35.

    With the Federal Budget due to be handed down next Tuesday (14/5/02), I am tipping a zero change in rate settings, tomorrow.

    Today, the Reserve will opt for a neutral outlook to be retained in relation to interest rate settings (ie: no change in rates for May, but with clear notice to the markets to expect sobriety, or face a definite rate rise in June).

    Key factors which are likely to influence the Reserve in its deliberations will be the following:
    the extent we are experiencing a choppy economic recovery with poor current showings in the retail, telco and now enhanced financial services sector (specifically, AMP);
    the extent to which the level housing has underscored the recovery to date, vs the slower than normal take-up in large infrastructure projects (ie: expect State and Federal Governments throughout Australia to commit more to capital works spending in the coming 12 months, beginning this afternoon with the Bracks Government's 3rd budget here in Victoria);
    the level of recovery in the Australian Dollar, particularly when measured against the USD, but also on a trade weighted basis (ie: terms of trade up ~1.5% over the last 12 months, vs >6% in USD terms);
    the global outlook, with a continuing wait and see approach being taken, as opposed to us leading the rate tightening cycle this time round (ie: ignoring Sweden's rise back in early April);
    the risk of El Nino affecting our agricultural sector in the coming 12 months;
    wage pressures remaining in moderation (for the time being);
    inflation being at the upper end of the Reserve's management band (ie: 3%), but not yet over it (ie: some evidence of input and stock shortages emerging, but not yet widespread); and
    consumer confidence being stuck in neutral (ie: as if waiting for a signal as to which way to go).
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