Statement By Philip Lowe, Governor: Monetary Policy Decision - July 2019 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2019-07-02

Media Release
Statement By Philip Lowe, Governor: Monetary Policy Decision
2 July 2019
At its meeting today, the Board decided to lower the cash rate by 25 basis points to
1.00 per cent. This follows a similar reduction at the Board's June meeting. This
easing of monetary policy will support employment growth and provide greater confidence that inflation
will be consistent with the medium-term target.
The outlook for the global economy remains reasonable. However, the uncertainty generated by the trade
and technology disputes is affecting investment and means that the risks to the global economy are
tilted to the downside. In most advanced economies, inflation remains subdued, unemployment rates are
low and wages growth has picked up. The slowdown in global trade has contributed to slower growth in
Asia. In China, the authorities have taken 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 to expectations of easing of monetary policy by the major
central banks. Long-term government bond yields have declined further and are at record lows in a number
of countries, including Australia. Bank funding costs in Australia have also declined, with money-market
spreads having fully reversed the increases that took place last year. Borrowing rates for both
businesses and households are at historically low levels. The Australian dollar is at the low end of its
narrow range of recent times.
Over the year to the March quarter, the Australian economy grew at a below-trend
1.8 per cent. Consumption growth has been subdued, weighed down by a protracted period of low
income growth and declining housing prices. Increased investment in infrastructure is providing an
offset and a pick-up in activity in the resources sector is expected, partly in response to an increase
in the prices of Australia's exports. The central scenario for the Australian economy remains
reasonable, with growth around trend expected. The main domestic uncertainty continues to be the outlook
for consumption, although a pick-up in growth in household disposable income is expected to support
Employment growth has continued to be strong. Labour force participation is at a record level, the
vacancy rate remains high and there are reports of skills shortages in some areas. There has, however,
been little inroad into the spare capacity in the labour market recently, with the unemployment rate
having risen slightly to 5.2 per cent. The strong employment growth over the past year or so
has led to a pick-up in wages growth in the private sector, although overall wages growth remains low. A
further gradual lift in wages growth is still expected and this would be a welcome development. Taken
together, these labour market outcomes suggest that the Australian economy can sustain lower rates of
unemployment and underemployment.
Inflation pressures remain subdued across much of the economy. Inflation is still, however, anticipated
to pick up, and will be boosted in the June quarter by increases in petrol prices. The central scenario
remains for underlying inflation to be around 2 per cent in 2020 and a little higher after
Conditions in most housing markets remain soft, although there are some tentative signs that prices are
now stabilising in Sydney and Melbourne. Growth in housing credit has also stabilised recently. Demand
for credit by investors continues to be subdued and credit conditions, especially for small and
medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition
for borrowers of high credit quality.
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. The Board will continue to monitor developments in the labour
market closely and adjust monetary policy if needed to support sustainable growth in the economy and the
achievement of the inflation target over time.
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