MNI STATE OF PLAY: RBA On Hold, Trims Growth Outlook

By Lachlan Colquhoun 

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

unchanged Tuesday, although trimming their growth outlook for both 2019 and 2020

and recognizing that downside risks to the global economy are increasing.

     Leaving rates at a historic low 1.5%, the RBA tweaked its language and

outlook, but offered no changed guidance on the future rate path, saying current

policy settings will deliver growth and achieve the inflation target of between

2 and 3% "over time."

     The RBA recognized that the "outlook for global growth remains reasonable",

although noting that "downside risks have increased". 

     That pushed them to trim their central scenario for domestic growth, now

looking for GDP to grow "around 3% this year and by a little less in 2020 due to

slower growth in exports of resources". In December's Statement on Monetary

Policy, the RBA saw growth at a little over 3% in 2019 and at 3% for 2020.

     --HOUSEHOLD SPENDING

     Australian GDP growth slowed to an annualised 2.8% in the September

quarter, a result the RBA attributed to "slow growth in household consumption

and income."

     "Growth in household income has been low over recent years, but is expected

to pick up and support household spending," the RBA statement said.

     However, the Bank accepted there are risks to consumer spending from a weak

housing market.

     "The main domestic uncertainty remains around the outlook for household

spending and the effect of falling housing prices in some cities," the policy

statement said.

     While acknowledging the fall in property prices, particularly in the

largest markets of Sydney and Melbourne, the RBA describe them as "going through

a period of adjustment after an earlier large run up in prices."

     Credit conditions are "tighter" than they have been, although mortgage

rates remain low and there is "strong competition for borrowers of high credit

quality," the statement noted.

     --GLOBAL RISKS

     On the global economy, the RBA notes that while it grew above trend in

2018, growth slowed in the second part of the year.

     "The outlook for global growth remains reasonable, although downside risks

have increased," the Bank says.

     "Trade tensions are affecting global trade and some investment decisions.

Growth in the Chinese economy has continued to slow, with the authorities easing

policy while continuing to play close attention to the risks in the financial

sector."

     --INFLATION SEEN HIGHER

     The RBA's central scenario for underlying inflation is 2% this year and

2.25% in 2020. Over 2018, inflation was 1.8% and 1.75% in underlying terms.

     "Underlying inflation is expected to pick up over the next couple of years,

with the pick up likely to be gradual and to take a little longer than

expected."

     Currently, headline inflation was moving lower due to the fall in oil

prices, although core inflation has picked up "in a number of countries."

     The Bank acknowledged that US interest rates had stabilised, saying "market

participants no longer expect a further tightening of monetary policy in the

US."

     The Australian dollar, the RBA said, "has remained within the narrow range

of recent times."

     Further details on the RBA's 2019 outlook are expected in the first

Statement on Monetary Policy for this year, due on Friday.

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

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