Australia's economy is slowing, but that doesn't mean another Reserve Bank interest rate cut is on the cards.
Westpac senior economist Matthew Hassan said the bank's key indicator for economic growth three to nine months into the future is now below trend after a positive start to the year.
"Stalling momentum mid-year is a concern given the recent reduction in interest rates and hopes that this would help generate a more convincing upswing in Australia's consumer and non-mining business sectors," he said.
The latest Westpac/Melbourne Institute Leading Index, fell 0.21 percentage points to just below zero in May, after being in positive territory for four months.
Mr Hassan said while falling commodity prices and declining US industrial production have been a drag on the Australian economy, some added factors have crept in more recently.
The more recent loss of momentum over the last three months has been due to a combination of slower growth in dwelling approvals and a drop in consumer sentiment," he said.
The next meeting of the Reserve Bank board is on July 7 and Westpac is predicting there will be no cut to the cash rate, despite a mid-year economic slowdown.
RBA officials have recently indicated the bank is open to cut the cash rate further, if necessary.
However the Reserve Bank said it will wait to assess the impact of the cuts that it made in February and May.
"The Bank will also be watching for confirmation that regulatory measures are working to contain potential risks in parts of the housing market," Mr Hassan said.
"Our current view is that rates will remain on hold throughout 2015 and 2016."
Mr Hassan said while the cash for more interest rate cuts is strengthening will more likely cause the RBA to talk about further reductions, rather than actually cutting the cash rate to below two per cent.
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