RBA to keep finger off rate button

The Reserve Bank of Australia (RBA) is expected to keep its official interest rate on hold on Tuesday.

All 13 economists surveyed by AAP said the RBA would not move the cash rate from its current 3.5 per cent at its September board meeting.

However, 11 of the economists said they expected a rate cut in the last three months of the calendar year.

RBC senior economist Su-Lin Ong said the Australian economy performed well in the first half of 2012 but would need some help from the RBA in the latter part of the year.

"A lot of that comes from a drop in the terms of trade and the knock-on impact to lower national income," Ms Ong said.

"The second part of that story is a softer labour market, and we are looking for the unemployment rate to rise as we go into the end of the year and next year."

Ms Ong said the sluggish US economy, the euro zone financial crisis and a slowdown in Asia would be challenging for the Australian economy.

"We think there is still scope for the RBA to lower rates further.

"Admittedly it seems pretty reluctant, so we think they probably won't do very much in the next few months, she said.

The central bank last cut the cash rate in June, by a quarter of a percentage point.

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