MNI REVIEW: RBA Cuts Rates To Record Low 1% On Slow Growth

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia cut its official interest rate

for the second time in two months Tuesday, lowering the cash rate by 25 basis

points to a record low 1%.

     Citing below-trend GDP growth of just 1.8%, subdued consumption

expenditure, declining house prices and a "protracted period" of low income

growth, RBA Governor Philip Lowe said the cuts would help make "further inroads"

into spare capacity in the economy.

     "It will assist with faster progress in reducing unemployment and achieve

more assured progress towards the inflation target," Lowe said in a statement

accompanying the RBA's decision.

     --SPARE CAPACITY

     Although employment growth remained strong, with participation rate at

record levels, there had been "little inroad" into spare capacity and the

unemployment rate has edged up to 5.2%, Lowe said. Inflation is running at 1.3%

annually against the RBA target of between 2 and 3%, he added.

     After leaving rates unchanged for more than two and a half years, the RBA

has now lowered the official cash rate by a total 50 basis points at its last

two meetings.

     --BACK-TO-BACK

     The Bank has been open in communicating its dovish outlook since the

economy started to slow down late in 2018, and while a second rate cut was

expected by analysts, there was some disagreement as to whether it would come in

July or August.

     After the June cut, Lowe conceded that it was "unrealistic to expect that

lowering interest rates by a quarter of a percentage point will materially shift

the path we look to be on."

     --FISCAL POLICY

     The RBA is also looking to the Federal Government to enact fiscal stimulus

and issue Government bonds to fund public projects.

     Senior RBA figures have met with independent senators whose votes will be

crucial to the passage of the Government's A$158 billion tax cut package, set to

be introduced into the Parliament this month.

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

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