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Reserve Bank tipped to show mercy

Home loan interest rates were left on hold in June for the first time in four months, although financial markets are factoring in several more increases in 2010.

AMP Capital Investors chief economist Shane Oliver, however, is expecting the Reserve Bank of Australia (RBA) to show some short-term mercy.

The clues may be heard in a speech Mr Stevens delivers on Wednesday at Castle Hill, in the heart of north-western Sydney's mortgage belt.

“A speech by RBA governor Glenn Stevens is likely to confirm that while the bank still retains a tightening bias interest rates are likely to remain on hold for a while,” Dr Oliver said in a note to clients.

The address to the Western Sydney Business Connection will be heard on the same day official housing finance data for April is released.

Economists are expecting the figures to show a two per cent drop, following a 3.4 per cent decline in March, as potential borrowers are repelled by a string of recent interest rate rises.

Rate increases since October have also battered consumer sentiment.

The Westpac-Melbourne Institute barometer of confidence fell by seven per cent in May and could take another slide again in June as consumers respond to turmoil on global share markets.

On a brighter front, Australia's jobs scene is expected to some gradual improvement.

The experts are expecting official labour market data for May, due out on Thursday, to show the jobless rate holding steady at 5.4 per cent as 20,000 jobs are created.

Continuing growth in the jobs market would contribute to a “very gradual” drop in the unemployment rate, Westpac economists said.

The ANZ series on newspaper and internet job advertisements for May, due out early in the week, will provide clues on the hiring activity of employers.

The National Australia Bank's business confidence measure, regarded as a leading indicator of economic activity, has been volatile in recent months.

Another weak reading for May could encourage the RBA to leave rates on hold for several more months.

Treasurer Wayne Swan, who is in South Korea of the Group of 20 meeting of finance ministers, said there were still risks in global financial markets stemming the European debt crisis.

“It is so important that my G20 colleagues and I continue to work together to secure strong, sustainable and balanced growth,” he said in an economic note.

Mr Swan will fly to Beijing on Sunday to meet with Chinese government leaders.
SOURCE: Stephen Johnson – Sydney Morning Herald