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.

===========================================================================

     At its meeting today (December 3), the Board decided to leave the cash rate

unchanged at 0.75 per cent.

     The outlook for the global economy remains reasonable. While the risks are

still tilted to the downside, some of these risks have lessened recently. 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 over recent months in response to the downside risks

and subdued inflation. Expectations of further monetary easing have generally

been scaled back. Financial market sentiment has continued to improve and

long-term government bond yields are around record lows in many countries,

including Australia. Borrowing rates for both businesses and households are at

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

over recent times.

     After a soft patch in the second half of last year, the Australian economy

appears to have reached a gentle turning point. The central scenario is for

growth to pick up gradually 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 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.

     The unemployment rate has been 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 is

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.

     Inflation is expected 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.

This is especially so in Sydney and Melbourne, but prices in some other markets

have also increased recently. 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 this year is supporting employment and income

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

The lower cash rate has put downward pressure on the exchange rate, which is

supporting activity across a range of industries. It has also boosted asset

prices, which in time should lead to increased spending, including on

residential construction. Lower mortgage rates are also boosting aggregate

household disposable income, which, in time, will boost household spending.

     Given these effects of lower interest rates and the long and variable lags

in the transmission of monetary policy, the Board decided to hold the cash rate

steady at this meeting while it continues to monitor developments, including in

the labour market. The Board also agreed that due to both global and domestic

factors, it was 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 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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