The Reserve Bank of Australia is almost certain to keep the cash rate on hold at 2 per cent when its board meets on Tuesday, with analysts focused more on governor Glenn Stevens' statement than the decision itself.
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Of the 28 economists surveyed by Bloomberg about the August policy meeting, only three tip a cut, to 1.75 per cent. Interest rate swap market pricing also discounts any chance of further policy easing on Tuesday.
The central bank last lowered rates a quarter of a percentage point in May, following an initial similar cut in February after 18 months of keeping rates on hold.
Despite patchy economic data since then, the RBA seems reluctant to make a third cut, partly on concerns about Sydney's overheated property market and household indebtedness but also because of its own doubts about the efficacy of lower rates at this stage of the current cycle.
The Australian dollar is trading closer to fair value, the job market appears to have stabilised, inflation remains comfortably inside the RBA's target band and there are faint signs of a pick-up in business investment outside the resources industry.
However, growth rates are likely to remain below trend for the foreseeable future, according to a range of economists, and June-quarter gross domestic product growth is expected to be weaker than the 0.9 per cent logged in the March quarter.
Mr Stevens suggested in recent speech that assumptions about about how fast the economy needs to grow to create employment might need a downward revision.
"Local data released over the past month have been mixed," wrote Nomura's rate strategist for Australia Andrew Ticehurst, who called both the February and May cash rate cuts.
"The latest monthly NAB business survey and labour force report were stronger than expected, but retail sales data disappointed and consumer sentiment fell.
"We view the balance of housing data over the past month as having been mixed as well," he said.
Mr Ticehurst, however, is sticking to earlier forecasts of a third cash rate cut in November, made possible by tougher lending conditions for some segments of the housing market.
"Any easing in the growth of lending to housing investors over the next few months – following an increase in bank lending rates for these borrowers – would in our view make it easier for the RBA to respond to sub-trend growth," he said.
Bank of America Merrill Lynch's chief Australian economist Alex Joiner goes further, suggesting that "the bank's comfort in keeping rates unchanged should gradually grow over time, allowing it to leave rates on hold for an extended period".
He sees the main risks to this assessment in any spike in the unemployment rate from the current 6 per cent and a worse-than-expected downgrade to growth forecasts in the RBA's statement on monetary policy on Friday.
"The RBA appears relatively comfortable with rates where they are," said Mr Joiner.
"There is no doubt that in the short term it continues to scan the environment for any downside risks, but we view the hurdle for another cut is a high one," he said.
Westpac's chief economist Bill Evans says Mr Stevens' easing bias of late has been directed more at talking down the Australian dollar than alluding to a third cash rate cut.
Despite its more than 20 per cent depreciation against the US dollar since this time last year, the currency is still overvalued on a trade-weighted basis, once falls in commodity prices are fully accounted for, he says.
"Now at US73¢ the Australian dollar has certainly not fallen sufficiently for the governor to abandon a successful strategy," he said.
"Further, we suspect that the key reason behind his referring to potential further easing in speeches is also a desire to maintain downward pressure on the Australian dollar."
