Statement by Philip Lowe, Governor: Monetary Policy Decision - October 2019 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2019-10-01

Media Release
Statement by Philip Lowe, Governor: Monetary Policy Decision
1 October 2019
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 0.75 per cent.
While the outlook for the global economy remains reasonable, the risks are tilted to the downside. The
US–China trade and technology disputes are affecting international trade flows and investment as
businesses scale back spending plans because of 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.
Interest rates are very low around the world and further monetary easing is widely expected, as central
banks respond to the persistent downside risks to the global economy and subdued inflation. Long-term
government bond yields are around record lows in many countries, including Australia. Borrowing rates
for both businesses and households are also at historically low levels. The Australian dollar is at its
lowest level of recent times.
The Australian economy expanded by 1.4 per cent over the year to the June quarter, which was
a weaker-than-expected outcome. A gentle turning point, however, appears to have been reached with
economic growth a little higher over the first half of this year than over the second half of 2018. 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 should all support
growth. The main domestic uncertainty continues to be the outlook for consumption, with the sustained
period of only modest increases in household disposable income continuing to weigh on consumer
Employment has continued to grow strongly and labour force participation is at a record high. The
unemployment rate has, however, remained steady at around 5¼ per cent over recent months.
Forward-looking indicators of labour demand indicate that employment growth is likely to slow from its
recent fast rate. Wages growth remains subdued and there is little upward pressure at present, with
increased 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 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 and underlying terms, inflation is expected to be a little under 2 per cent over 2020
and a little above 2 per cent over 2021.
There are further signs of a turnaround in established housing markets, especially in Sydney and
Melbourne. In contrast, new dwelling activity has weakened and growth in housing credit remains low.
Demand for credit by investors is 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.
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 economy still has spare capacity and lower interest rates will help make inroads into that. 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.
It is reasonable to expect that an extended period of low interest rates will be required in Australia
to reach full employment and achieve the inflation target. The Board will continue to monitor
developments, including in the labour market, and is prepared to ease monetary policy further if needed
to support sustainable growth in the economy, full employment and the achievement of the inflation
target over time.
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