MNI: RBA Leaves Key Rate Unchanged at 0.75% - Text

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

interest rate unchanged at 25 bps Tuesday. Following is the text of the

accompanying statement.

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

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 continue to

affect international trade flows and investment as businesses scale back

spending plans because of the 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 steps to support the

economy while continuing to address risks in the financial system.

     Interest rates are very low around the world and a number of central banks

have eased monetary policy in response to the persistent downside risks and

subdued inflation. Expectations of further monetary easing have generally been

scaled back over the past month and financial market sentiment has improved a

little. Even so, 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 the

lower end of its range over recent times.

     The outlook for the Australian economy is little changed from three months

ago. After a soft patch in the second half of last year, a gentle turning point

appears to have been reached. The central scenario is for the Australian economy

to grow by around 2.25 per cent this year and then for growth gradually to pick

up to around 3 per cent in 2021. The low level of interest rates, recent tax

cuts, ongoing spending on infrastructure, the upswing in housing prices in some

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. Other sources of

uncertainty include the effects of the drought and the evolution of the housing

construction cycle.

     Employment has continued to grow strongly and has been matched by strong

growth in labour supply, with labour force participation at a record high. The

unemployment rate has remained steady at around 5.25 per cent over recent

months. It is expected to remain around this level for some time, before

gradually declining to a little below 5 per cent in 2021. Wages growth remains

subdued and is expected to remain at around its current rate for some time yet.

A further gradual lift in wages growth would be a welcome development and is

needed for inflation to be sustainably within the 2-3 per cent target range.

Taken together, recent outcomes suggest that the Australian economy can sustain

lower rates of unemployment and underemployment.

     The recent inflation data were broadly as expected, with headline inflation

at 1.7 per cent over the year to the September quarter. The central scenario

remains for inflation to pick up, but to do so only gradually. In both headline

and underlying terms, inflation is expected to be close to 2 per cent in 2020

and 2021.

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

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

declining 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 easing of monetary policy since June is supporting employment and

income growth in Australia and a return of inflation to the medium-term target

range. Given global developments and the evidence of the spare capacity in the

Australian economy, 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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