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RBA tipped to keep rates on hold


The central bank looks set to leave the cash rate unchanged for a second month in a row, even though inflation pressures remain benign and business confidence continues to ebb.

The Reserve Bank of Australia (RBA) is to hold its monthly board meeting on Tuesday and economists widely expect the cash rate to remain at 3.5 per cent following 75 basis points worth of cuts in May and June.

"We think the case for an unchanged cash rate is the most compelling one for August, with activity having held up OK of late without shooting the lights out," National Australia Bank senior economist David de Garis said on Monday.

Treasurer Wayne Swan said rate decisions were a matter for the independent RBA.

"But bringing the budget back to surplus has already helped give the RBA room to deliver the equivalent of five interest rate cuts since last November," Mr Swan told AAP in a statement.

The Australian Chamber of Commerce and Industry (ACCI) in its latest expectations survey released on Monday showed business conditions went backwards in the June quarter, despite the central bank's easier monetary policy stance.

Its index for general business conditions eased to 44.9 points, from 45.1 points in the previous three months, remaining below the crucial 50-point level that separates expansion from contraction.

The expected economic performance index was also unchanged at 44 points, suggesting the outlook continued to be negative.

ACCI director of economics and industry policy Greg Evans said the result was disappointing, blaming for the weak survey global volatility, a strong Australian dollar and new taxes.

The ACCI has been a major critic of the government's carbon tax that came into operation on July 1.

"It is particularly concerning that the negative sentiment in this survey has been recorded before the cost impact of the carbon tax has been realised," Mr Evans told reporters in Canberra.

Treasury has forecast that the $23-a-tonne price on carbon would add an initial 0.7 per cent to the consumer price index (CPI).

However, the TD Securities-Melbourne Institute inflation gauge rose by just 0.2 per cent in July, leaving the annual rate at 1.5 per cent, its lowest level in nearly three years and below the RBA's two to three per cent target band.

Assistant Treasurer David Bradbury said the data had again exposed the opposition's "reckless scare campaign".

TD Securities head of Asia-Pacific research Annette Beacher said utility prices rose by 10.3 per cent, within Treasury estimates.

"The gauge confirms that pricing pressure outside of the immediate impact of the carbon tax remains weak," Ms Beacher said.

Other data on Monday showed job advertisements fell for a fourth straight month, declining by a further 0.8 per cent in July.

ANZ head of Australian economics research Ivan Colhoun said that, taken together with a pick-up in job losses due to restructuring and businesses productivity initiatives, it was consistent with a slight further rise in unemployment.

Official labour force data on Thursday are expected to show the jobless rate rising to 5.3 per cent in July from 5.2 per cent previously.