MNI: RBA Cuts Key Cash Rate 25 bps to 0.50% - Text

     SYDNEY (MNI) - The Reserve Bank of Australia cut its key benchmark interest

rate 25 bps to 0.50% Tuesday. Following is the text of the accompanying

statement.

===========================================================================

     At its meeting today, the Board decided to lower the cash rate by 25 basis

points to 0.50 per cent. The Board took this decision to support the economy as

it responds to the global coronavirus outbreak.

     The coronavirus has clouded the near-term outlook for the global economy

and means that global growth in the first half of 2020 will be lower than

earlier expected. Prior to the outbreak, there were signs that the slowdown in

the global economy that started in 2018 was coming to an end. It is too early to

tell how persistent the effects of the coronavirus will be and at what point the

global economy will return to an improving path. Policy measures have been

announced in several countries, including China, which will help support growth.

Inflation remains low almost everywhere and unemployment rates are at

multi-decade lows in many countries.

     Long-term government bond yields have fallen to record lows in many

countries, including Australia. The Australian dollar has also depreciated

further recently and is at its lowest level for many years. In most economies,

including the United States, there is an expectation of further monetary

stimulus over coming months. Financial markets have been volatile as market

participants assess the risks associated with the coronavirus. Australia's

financial markets are operating effectively and the Bank will ensure that the

Australian financial system has sufficient liquidity.

     The coronavirus outbreak overseas is having a significant effect on the

Australian economy at present, particularly in the education and travel sectors.

The uncertainty that it is creating is also likely to affect domestic spending.

As a result, GDP growth in the March quarter is likely to be noticeably weaker

than earlier expected. Given the evolving situation, it is difficult to predict

how large and long-lasting the effect will be. Once the coronavirus is

contained, the Australian economy is expected to return to an improving trend.

This outlook is supported by the low level of interest rates, high levels of

spending on infrastructure, the lower exchange rate, a positive outlook for the

resources sector and expected recoveries in residential construction and

household consumption. The Australian Government has also indicated that it will

assist areas of the economy most affected by the coronavirus.

     The unemployment rate increased in January to 5.3 per cent and has been

around 5.25 per cent since April last year. Wages growth remains subdued and is

not expected to pick up for some time. A gradual lift in wages growth would be a

welcome development and is needed for inflation to be sustainably within the 2-3

per cent target range.

     There are further signs of a pick-up in established housing markets, with

prices rising in most markets, in some cases quite strongly. Mortgage loan

commitments have also picked up, although demand for credit by investors remains

subdued. Mortgage rates are at record lows and there is strong competition for

borrowers of high credit quality. Credit conditions for small and medium-sized

businesses remain tight.

     The global outbreak of the coronavirus is expected to delay progress in

Australia towards full employment and the inflation target. The Board therefore

judged that it was appropriate to ease monetary policy further to provide

additional support to employment and economic activity. It will continue to

monitor developments closely and to assess the implications of the coronavirus

for the economy. The Board is prepared to ease monetary policy further to

support the Australian economy.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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