MNI REVIEW: RBA Cuts To Record Low, Has More If Needed

By Lachlan Colquhoun 

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

25 bps to a record low 0.75% and stands ready to ease rates again "to support

sustainable growth in the economy."

     The RBA obliged expectant financial markets with a third cut since June, a

decision which takes Australian rates below 1% for the first time, saying the

move is needed to support employment and income growth.

     In its accompanying statement, the RBA said that although there were signs

of a "gentle turning point" in the domestic economy, a combination of global

downside risks and sluggish domestic employment growth had swung its decision.

     "The Board took the decision to lower interest rates further today to

support employment and income growth and to provide greater confidence that

inflation will be consistent with the medium-term target," the statement said.

     "The Board also took account of the forces leading to the trend to lower

interest rates globally and the effects this trend is having on the Australian

economy and inflation outcomes."

     --HOUSING MARKET

     The RBA discounted evidence that its two rate cuts were fuelling a new

bubble in the residential housing market, saying that although there was a

"turnaround" in the key markets of Sydney and Melbourne, dwelling activity was

still weak and growth in housing credit was low.

     Earlier Tuesday, the Australian Bureau of Statistics released data showing

dwelling approvals fell 1.1% month-on-month in August.

     The RBA statement noted that unemployment is at 5.4% and employment growth

was now likely to slow down, while wages growth remained subdued. At an

annualized 1.6%, inflation is well under the RBA's 2% to 3% target range, while

the economy is growing at a "weaker than expected" 1.4%.

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

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