MNI: RBA Cuts Key Official Cash Rate 25Bps To 1.00% - Text

     SYDNEY (MNI) - The Reserve Bank of Australia cut its key rate by 25 bps to

a record low 1.00% Tuesday, cutting for a second consecutive month. The full

text of Governor Philip Lowe's accompanying text follows:

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

points to 1.00 per cent. This follows a similar reduction at the Board's June

meeting. This easing of monetary policy will 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. However, the

uncertainty generated by the trade and technology disputes is affecting

investment and means that the risks to the global economy are tilted to the

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

rates are low and wages growth has picked up. The slowdown in global trade has

contributed to slower growth in Asia. In China, the authorities have taken steps

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

system.

     Global financial conditions remain accommodative. The persistent downside

risks to the global economy combined with subdued inflation have led to

expectations of easing of monetary policy by the major central banks. Long-term

government bond yields have declined further and are at record lows in a number

of countries, including Australia. Bank funding costs in Australia have also

declined, with money-market spreads having fully reversed the increases that

took place last year. Borrowing rates for both businesses and households are at

historically low levels. The Australian dollar is at the low end of its narrow

range of recent times.

     Over the year to the March quarter, the Australian economy grew at a

below-trend 1.8 per cent. Consumption growth has been subdued, weighed down by a

protracted period of low income growth and declining housing prices. Increased

investment in infrastructure is providing an offset and a pick-up in activity in

the resources sector is expected, partly in response to an increase in the

prices of Australia's exports. The central scenario for the Australian economy

remains reasonable, with growth around trend expected. The main domestic

uncertainty continues to be the outlook for consumption, although a pick-up in

growth in household disposable income is expected to support spending.

     Employment growth has continued to be strong. Labour force participation is

at a record level, the vacancy rate remains high and there are reports of skills

shortages in some areas. There has, however, been little inroad into the spare

capacity in the labour market recently, with the unemployment rate having risen

slightly to 5.2 per cent. 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 still

expected and this would be a welcome development. Taken together, these labour

market outcomes suggest that the Australian economy can sustain lower rates of

unemployment and underemployment.

     Inflation pressures remain subdued 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 around 2 per cent in 2020 and a little higher after that.

     Conditions in most housing markets remain soft, although there are some

tentative signs that prices are now stabilising in Sydney and Melbourne. Growth

in housing credit has also stabilised recently. Demand for credit by investors

continues to be 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.

     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 if needed 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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