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     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.
===========================================================================
     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
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com