After 2 25-point slices off its cashrate in June & July, the Reserve Bank of Australia held steady at 1% today.
Bank governor Philip Lowe said: “The outlook for the global economy remains reasonable, although the risks are tilted to the downside. The trade & technology disputes are affecting international trade flows & investment as businesses scale back spending plans due to the increased uncertainty.
“At the same time, in most advanced economies, unemployment rates are low and wages growth has picked up, although inflation remains low. In China, the authorities have taken further steps to support the economy, while continuing to address risks in the financial system.
“Global financial conditions remain accommodative. The persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year, and further monetary easing is widely expected. Long-term government bond yields have declined and are at record lows in many countries, including Australia. Borrowing rates for both businesses & households are also at historically low levels. The $A is at its lowest level of recent times.
“Economic growth in Australia over the first half of this year has been lower than earlier expected, with household consumption weighed down by a protracted period of low income growth and declining housing prices & turnover.
“Looking forward, growth in Australia is expected to strengthen gradually to be around trend over the next couple of years. The outlook is being supported by the low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets and a brighter outlook for the resources sector.
“The main domestic uncertainty continues to be the outlook for consumption, although a pickup in growth in household disposable income and a stabilisation of the housing market are expected to support spending.
“Employment has grown strongly over recent years and labour force participation is at a record high. The unemployment rate has, however, remained steady at 5.2% over recent months. Wages growth remains subdued and there is little upward pressure at present, with strong labour demand being met by more supply. Caps on wages growth are also affecting public sector pay outcomes across the country. A further gradual lift in wages growth would be a welcome development. Taken together, recent labour market outcomes suggest that the Australian economy can sustain lower rates of unemployment and & underemployment.
“Inflation pressures remain subdued and this is likely to be the case for some time yet. In both headline & underlying terms, inflation is expected to be a little under 2% over 2020 and a little above 2% over 2021.
“There are further signs of a turnaround in established housing markets, especially in Sydney & Melbourne. In contrast, new dwelling activity has weakened. Growth in housing credit remains low. Demand for credit by investors continues to be subdued and credit conditions, especially for small & medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.
“It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target. The [bank’s] board will continue to monitor developments, including in the labour market, and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”
Attribution: Bank release.