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Shares dive ahead of Reserve Bank meeting -

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ELEANOR HALL: The Australian sharemarket is in a nervous mood this lunchtime as investors await the
Reserve Banks decision on interest rates. The RBA Board is meeting today amid fears that the
economy is heading rapidly towards a recession.

But while economists are tipping a rates cut later in the year or early next year, few expect the
board to move on rates today. I'm joined in the studio now by our business editor Peter Ryan.

So Peter what is happening on the share market today?

PETER RYAN: Eleanor, shares have fallen as much as 2.1 per cent today. That's a 2.5 year low. A
short time ago the key market indicator, the All Ordinaries index was 99 points lower at 4,858.

Now the market is often hesitant before an important event such as a Reserve Bank Board meeting.
And this one is being more closely watched than others in the past. This fall today on the share
market is also largely related to more fears about a global slowdown, which has hit demand for oil
and metals. Copper, for example, at a six month low and oil at a three month low.

That's sparked big falls in the resource giants and market leaders, BHP Billiton down 5.6 per cent
and Rio Tinto almost five per cent. The lower oil prices hit the big oil players Woodside and
Santos and although we are in the midst of a resources boom, and that has been insulating the
economy, a slowing in global demand would hit all sectors of industry and of course the consumer.

And that could be a dampener on the Australian sharemarket in the coming months, and there is a
view that resources have been one of the factors keeping Australia out of recession.

ELEANOR HALL: So what are we expecting from the Reserve Bank Board this afternoon?

PETER RYAN: Well Eleanor the Reserve Bank will issue a brief statement with its decision this
afternoon outlining its thinking. It's widely expected rates will remain on hold at 7.25 per cent
while the Reserve Bank continues to monitor the slowing of the economy. Up until recently, the RBA
said nothing when it stayed on the sidelines. But now, there's a statement after every meeting and
the minutes are published a fortnight later, so there's much better communication that we had this
time last year.

But the wording this afternoon will be critical. Economists will be looking for any changed tone or
emphasis on the strength or perhaps weakness of the economy and whether the reason for the recent
series of rates rises, the big threat of inflation, is easing in the medium-term will be a key
feature of the statement.

Interestingly, this year the Reserve Bank has become more blunt in it's language, and it is
possible that the statement will reveal a strategy of gradually cutting rates over the next several
months.

ELEANOR HALL: With the evidence of falling consumer confidence, and dire predictions for business,
is there anything that would stop the Reserve Bank from cutting rates?

PETER RYAN: Well there is so much evidence around, such as the worst retail sales in June for a
decade, a significant slump in manufacturing activity and a range of private surveys saying things
are dire. Even so, it's worth keeping in mind that inflation is still very high at 4.5 per cent on
an annual basis. Well outside the Reserve Bank's comfort zone of two to three per cent.

And also the labour market remains at a very tight, 33 year low which is exacerbating the skills
shortage. This could end up delaying a rates cut with parts of the economy still strong especially
in the mining states, and the RBA will be looking for a softening in employment conditions as
evidence that the economy is in fact on the path to recession.

We will see official labour force figures on Thursday, there could be a slight rise in
unemployment, but even so that's coming off a high and there is a significant lagging effect.

ELEANOR HALL: We'll await the Reserve Bank's report this afternoon. Our business editor Peter Ryan,
thank you.