MNI: RBA Cuts Key Official Cash Rate 25 Bps To 0.75% - Text

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

interest rate by 25 bps Tuesday. Following is the text of the accompanying

statement.

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

points to 0.75 per cent.

     While the outlook for the global economy remains reasonable, the risks are

tilted to the downside. The US-China trade and technology disputes are affecting

international trade flows and investment as businesses scale back spending plans

because of the increased uncertainty. At the same time, in most advanced

economies, unemployment rates are low and wages growth has picked up, although

inflation remains low. In China, the authorities have taken further steps to

support the economy, while continuing to address risks in the financial system.

     Interest rates are very low around the world and further monetary easing is

widely expected, as central banks respond to the persistent downside risks to

the global economy and subdued inflation. Long-term government bond yields are

around record lows in many countries, including Australia. Borrowing rates for

both businesses and households are also at historically low levels. The

Australian dollar is at its lowest level of recent times.

     The Australian economy expanded by 1.4 per cent over the year to the June

quarter, which was a weaker-than-expected outcome. A gentle turning point,

however, appears to have been reached with economic growth a little higher over

the first half of this year than over the second half of 2018. The low level of

interest rates, recent tax cuts, ongoing spending on infrastructure, signs of

stabilisation in some established housing markets and a brighter outlook for the

resources sector should all support growth. The main domestic uncertainty

continues to be the outlook for consumption, with the sustained period of only

modest increases in household disposable income continuing to weigh on consumer

spending.

     Employment has continued to grow strongly and labour force participation is

at a record high. The unemployment rate has, however, remained steady at around

5.25 per cent over recent months. Forward-looking indicators of labour demand

indicate that employment growth is likely to slow from its recent fast rate.

Wages growth remains subdued and there is little upward pressure at present,

with increased labour demand being met by more supply. Caps on wages growth are

also affecting public-sector pay outcomes across the country. A further gradual

lift in wages growth would be a welcome development. Taken together, recent

outcomes suggest that the Australian economy can sustain lower rates of

unemployment and underemployment.

     Inflation pressures remain subdued and this is likely to be the case for

some time yet. In both headline and underlying terms, inflation is expected to

be a little under 2 per cent over 2020 and a little above 2 per cent over 2021.

     There are further signs of a turnaround in established housing markets,

especially in Sydney and Melbourne. In contrast, new dwelling activity has

weakened and growth in housing credit remains low. Demand for credit by

investors is subdued and credit conditions, especially for small and

medium-sized businesses, remain tight. Mortgage rates are at record lows and

there is strong competition for borrowers of high credit quality.

     The Board took the decision to lower interest rates further today to

support employment and income growth and to provide greater confidence that

inflation will be consistent with the medium-term target. The economy still has

spare capacity and lower interest rates will help make inroads into that. The

Board also took account of the forces leading to the trend to lower interest

rates globally and the effects this trend is having on the Australian economy

and inflation outcomes.

     It is reasonable to expect that an extended period of low interest rates

will be required in Australia to reach full employment and achieve the inflation

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

market, and is prepared to ease monetary policy further if needed to support

sustainable growth in the economy, full employment 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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