MNI: RBA Cuts Key Cash Rate 25 bps to Record Low 1.25%: Text

     SYDNEY (MNI) - The Reserve Bank of Australia cut its official cash rate by

25 basis points to a record low 1.25% Tuesday, again noting increased downside

global risks coming from trade disputes, despite a reasonable outlook for global

growth.

     The RBA saw domestic inflation picking up from current low levels, boosted

in the June quarter by higher petrol prices.

     The full text of the June 4 meeting follows:

     Statement by Philip Lowe, Governor: Monetary Policy Decision 

     4 June 2019 

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

points to 1.25 per cent. The Board took this decision to support employment

growth and provide greater confidence that inflation will be consistent with the

medium-term target.

     The outlook for the global economy remains reasonable, although the

downside risks stemming from the trade disputes have increased. Growth in

international trade remains weak and the increased uncertainty is affecting

investment intentions in a number of countries. In China, the authorities have

taken steps to support the economy, while addressing risks in the financial

system. In most advanced economies, inflation remains subdued, unemployment

rates are low and wages growth has picked up.

     Global financial conditions remain accommodative. Long-term bond yields and

risk premiums are low. In Australia, long-term bond yields are at historically

low levels. Bank funding costs have also declined further, with money-market

spreads having fully reversed the increases that took place last year. The

Australian dollar has depreciated a little over the past few months and is at

the low end of its narrow range of recent times.

     The central scenario remains for the Australian economy to grow by around

2.75 per cent in 2019 and 2020. This outlook is supported by increased

investment in infrastructure and a pick-up in activity in the resources sector,

partly in response to an increase in the prices of Australia's exports. The main

domestic uncertainty continues to be the outlook for household consumption,

which is being affected by a protracted period of low income growth and

declining housing prices. Some pick-up in growth in household disposable income

is expected and this should support consumption.

     Employment growth has been strong over the past year, labour force

participation has been increasing, the vacancy rate remains high and there are

reports of skills shortages in some areas. Despite these developments, there has

been little further inroads into the spare capacity in the labour market of

late. The unemployment rate had been steady at around 5 per cent for some

months, but ticked up to 5.2 per cent in April. The strong employment growth

over the past year or so has led to a pick-up in wages growth in the private

sector, although overall wages growth remains low. A further gradual lift in

wages growth is expected and this would be a welcome development. Taken

together, these labour market outcomes suggest that the Australian economy can

sustain a lower rate of unemployment.

     The recent inflation outcomes have been lower than expected and suggest

subdued inflationary pressures across much of the economy. Inflation is still

however anticipated to pick up, and will be boosted in the June quarter by

increases in petrol prices. The central scenario remains for underlying

inflation to be 1.75 per cent this year, 2 per cent in 2020 and a little higher

after that.

     The adjustment in established housing markets is continuing, after the

earlier large run-up in prices in some cities. Conditions remain soft, although

in some markets the rate of price decline has slowed and auction clearance rates

have increased. Growth in housing credit has also stabilised recently. Credit

conditions have been tightened and the demand for credit by investors has been

subdued for some time. Mortgage rates remain low and there is strong competition

for borrowers of high credit quality.

     Today's decision to lower the cash rate will help make further inroads into

the spare capacity in the economy. It will assist with faster progress in

reducing unemployment and achieve more assured progress towards the inflation

target. The Board will continue to monitor developments in the labour market

closely and adjust monetary policy to support sustainable growth in the economy

and the achievement of the inflation target over time.

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

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