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.

     The RBA saw domestic inflation pick up from current low levels, but only

gradually.

     The full text of the May 7 meeting follows:

     Statement by Philip Lowe, Governor: Monetary Policy Decision 

     7 May 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 the risks

are tilted to the downside. Growth in international trade has declined and

investment intentions have softened in a number of countries. In China, the

authorities have taken steps to support the economy, while addressing risks in

the financial system. In most advanced economies, inflation remains subdued,

unemployment rates are low and wages growth has picked up.

     Global financial conditions remain accommodative. Long-term bond yields are

low, consistent with the subdued outlook for inflation, and equity markets have

strengthened. Risk premiums also remain low. In Australia, long-term bond yields

are at historically low levels and short-term bank funding costs have declined

further. Some lending rates have declined recently, although the average

mortgage rate paid is unchanged. The Australian dollar is at the low end of its

narrow range of recent times.

     The central scenario is for the Australian economy to grow by around 2.75

per cent in 2019 and 2020. This outlook is supported by increased investment in

infrastructure and a pick-up in activity in the resources sector, partly in

response to an increase in the prices of Australia's exports. The main domestic

uncertainty continues to be the outlook for household consumption, which is

being affected by a protracted period of low income growth and declining housing

prices. Some pick-up in growth in household disposable income is expected and

this should support consumption.

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

increase in employment, the vacancy rate remains high and there are reports of

skills shortages in some areas. Despite these positive developments, there has

been little further progress in reducing unemployment over the past six months.

The unemployment rate has been broadly steady at around 5 per cent over this

time and is expected to remain around this level over the next year or so,

before declining a little to 4.75 per cent in 2021. The strong employment growth

over the past year or so has led to some pick-up in wages growth, which is a

welcome development. Some further lift in wages growth is expected, although

this is likely to be a gradual process.

     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 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 over the past

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

high credit quality.

     The inflation data for the March quarter were noticeably lower than

expected and suggest subdued inflationary pressures across much of the economy.

Over the year, inflation was 1.3 per cent and, in underlying terms, was 1.6 per

cent. Lower housing-related costs and a range of policy decisions affecting

administered prices both contributed to this outcome. Looking forward, inflation

is expected to pick up, but to do so only gradually. The central scenario is for

underlying inflation to be 1.75 per cent this year, 2 per cent in 2020 and a

little higher after that. In headline terms, inflation is expected to be around

2 per cent this year, boosted by the recent increase in petrol prices.

     The Board judged that it was appropriate to hold the stance of policy

unchanged at this meeting. In doing so, it recognised that there was still spare

capacity in the economy and that a further improvement in the labour market was

likely to be needed for inflation to be consistent with the target. Given this

assessment, the Board will be paying close attention to developments in the

labour market at its upcoming meetings.

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

[TOPICS: MMLRB$,M$A$$$,M$L$$$]