SYDNEY Australia's central bank is considered almost certain to keep interest rates at a record low when it meets on Tuesday, but it could try to talk down the local currency by clearly leaving the door open to more easing.
All 23 economists polled by Reuters expect the Reserve Bank of Australia to hold the cash rate steady at 2.5 percent, given no material deterioration in the economy since the last cut in August.
But a rebound in the Australian dollar, around 4 percent on a trade-weighted basis and 5 percent versus the U.S. dollar from a trough in August, would certainly have frustrated the central bank.
"This should be sufficient for the bank to issue a blunter warning about the currency in the October policy press release," said Barclays Capital analyst Kieran Davies.
"This warning would likely express a strong preference for a lower exchange rate and could see the bank reinstate its explicit easing bias."
The RBA has repeatedly said it hopes to see the currency fall further in order to help stimulate other parts of the economy as the long boom in mining investment cools down.
It shifted to a wait-and-see stance recently saying there is already a lot of monetary stimulus in the economy, having slashed the cash rate by 225 basis points from late 2011.
While non-mining business investments have stayed stubbornly soft, the effects of low borrowing costs can clearly be seen in the housing market.
In fact, record auction clearance in certain hot spots such as Sydney has gained a lot of media attention and even sparked talk of housing-bubble risk.
Both the RBA and the government have tried to quash such fears with central bank assistant governor, Malcolm Edey, describing them as "unrealistically alarmist".
Supporting Edey's view, data on Monday showed housing credit grew 4.7 percent in August from a year earlier, well below the heady 20-plus percent pace seen in the early 2000s during a real estate boom.
Many analysts in the Reuters survey suspect there could be one more rate cut in coming months and the likely trigger could very well be a benign reading of third-quarter consumer inflation due late in October.
A monthly private report on Monday showed annual inflation running at a 2.1 percent pace, near the floor of the RBA's long-term target band of 2 to 3 percent, suggesting room for further easing if needed.
Debt markets imply only a 6 percent chance of an October rate cut but are nearly fully priced for a quarter point cut by the first quarter of 2014.
(Reporting by Ian Chua; Editing by Chris Gallagher)