MNI REVIEW: No Shocks As RBA Cuts Rates To Record Low 1.25%

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia cut official interest rates by

25 bps to a record low 1.25% Tuesday, their first cut in rates since November

2016.

     Citing over capacity in the labour market and consistently low inflation,

the RBA said the cut would provide a boost to household disposable income,

supporting consumption.

     "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," RBA Governor Philip Lowe said in an accompanying

statement.

     "Today's decision to lower the cash rate will help make further inroads

into the spare capacity in the economy. It will assist with faster progress in

reducing unemployment and achieve more assured progress towards the inflation

target," he added.

     --INFLATION

     The RBA inflation target is between 2% and 3%, but inflation has fallen

away and CPI-measured inflation stands at 1.3%.

     With the impact of the interest rate cut, the RBA still believes that

underlying inflation will be "1.75% this year, 2% in 2020 and a little higher

after that," Lowe said.

     While the RBA still expects economic growth of "around 2.75%" over 2019 and

2020, Q1 GDP data, to be released tomorrow, could show zero growth in the

period.

     This RBA decision was well telegraphed by a speech Lowe made on May 21. the

Governor will speak again later Tuesday, with expectations he will further

explain both the decision and the Bank's outlook going forward.

     --MARKETS LOOK FOR MORE

     Many analysts expect another rate cut in August, although this would leave

the Bank with less ammunition to combat any ongoing slowdown in the Australian

economy.

     While the RBA decision was driven largely by impact of spare capacity in

the labour market on wages, consumption and inflation, the statement highlighted

increasing risks to the domestic economy from the global trade disputes, with

"weak" growth in international trade.

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

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