MNI: RBA Leaves Key Rate Unchanged At 1.5%: Text

     SYDNEY (MNI) - The Reserve Bank of Australia left the official cash rate

unchanged at a record low 1.5% Tuesday, again noting increased downside global

risks, despite a reasonable outlook for global growth.

     However, the RBA also saw a continued pick-up in the inflation level given

the continued tightness in the labour market. They also see the unemployment

rate continuing to decline.

     The full text of the April 2 meeting follows:

     Statement by Philip Lowe, Governor: Monetary Policy Decision 

     2 April 2019 

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

1.50 per cent.

     The outlook for the global economy remains reasonable, although growth has

slowed and downside risks have increased. Growth in international trade has

declined and investment intentions have softened in a number of countries. In

China, the authorities have taken steps to ease financing conditions, partly in

response to slower growth in the economy. Globally, headline inflation rates

have moved lower following the earlier decline in oil prices, although core

inflation has picked up in a number of economies. In most advanced economies,

unemployment rates are low and wages growth has picked up.

     Global financial conditions remain accommodative and have eased recently.

Long-term bond yields have declined further, consistent with the subdued outlook

for inflation and lower expectations for future policy rates in a number of

advanced economies. Across a range of markets, risk premiums remain low. Equity

markets have also risen and are being supported by growth in corporate earnings.

In Australia, long-term bond yields have fallen to historically low levels and

short-term bank funding costs have moderated further. The Australian dollar has

remained within its narrow range of recent times. While the terms of trade have

increased over the past couple of years, they are expected to decline over time.

     The Australian labour market remains strong. There has been a significant

increase in employment and the unemployment rate is at 4.9 per cent. The vacancy

rate remains high and there are reports of skills shortages in some areas. The

stronger labour market has led to some pick-up in wages growth, which is a

welcome development. Continued improvement in the labour market is expected to

see some further lift in wages growth over time, although this is still expected

to be a gradual process.

     The GDP data paint a softer picture of the economy than do the labour

market data. GDP rose by just 0.2 per cent in the December quarter to be 2.3 per

cent higher over 2018. Growth in household consumption is being affected by the

protracted period of weakness in real household disposable income and the

adjustment in housing markets. The drought in parts of the country has also

affected farm output. Offsetting these factors, higher levels of spending on

public infrastructure and an upswing in private investment are supporting the

growth outlook, as is the steady growth in employment.

     The adjustment in established housing markets is continuing, after the

earlier large run-up in prices in some cities. Conditions remain soft and rent

inflation remains low. Credit conditions for some borrowers have tightened a

little further over the past year or so. At the same time, the demand for credit

by investors in the housing market has slowed noticeably as the dynamics of the

housing market have changed. Growth in credit extended to owner-occupiers has

eased. Mortgage rates remain low and there is strong competition for borrowers

of high credit quality.

     Inflation remains low and stable. Underlying inflation is expected to pick

up gradually over the next couple of years, although this has been taking a

little longer than earlier expected. The central scenario is for underlying

inflation to be 2 per cent this year and 2.25 per cent in 2020. In the near

term, headline inflation is expected to decline because of lower petrol prices

earlier in the year, while underlying inflation is expected to remain broadly

stable.

     The low level of interest rates is continuing to support the Australian

economy. Further progress in reducing unemployment and having inflation return

to target is expected, although this progress is likely to be gradual. Taking

account of the available information, the Board judged that it was appropriate

to hold the stance of policy unchanged at this meeting. The Board will continue

to monitor developments and set monetary policy to support sustainable growth in

the economy and achieve the inflation target over time.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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