MNI: RBA Leaves Key Official Cash Rate Unch At 1.00% - Text

     SYDNEY (MNI) - The Reserve Bank of Australia left its key interest rate

unchanged at 1.00% Tuesday for a second consecutive month, following 25 bps cuts

in both May and June.

     The full text of Governor Philip Lowe's accompanying text follows:

     At its meeting today, the Board decided to leave the cash rate unchanged at

1.00 per cent.

     The outlook for the global economy remains reasonable, although the risks

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

international trade flows and investment as businesses scale back spending plans

due to 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.

     Global financial conditions remain accommodative. The persistent downside

risks to the global economy combined with subdued inflation have led a number of

central banks to reduce interest rates this year and further monetary easing is

widely expected. Long-term government bond yields have declined and are at

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.

     Economic growth in Australia over the first half of this year has been

lower than earlier expected, with household consumption weighed down by a

protracted period of low income growth and declining housing prices and

turnover. Looking forward, growth in Australia is expected to strengthen

gradually to be around trend over the next couple of years. The outlook is being

supported by 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. The main domestic uncertainty

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

household disposable income and a stabilisation of the housing market are

expected to support spending.

     Employment has grown strongly over recent years and labour force

participation is at a record high. The unemployment rate has, however, remained

steady at 5.2 per cent over recent months. Wages growth remains subdued and

there is little upward pressure at present, with strong 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 labour market 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. Growth in housing credit remains low. 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.

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

will be required in Australia to make progress in reducing unemployment and

achieve more assured progress towards the inflation target. The Board will

continue to monitor developments, including in the labour market, and ease

monetary policy further 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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