Statement by Philip Lowe, Governor: Monetary Policy Decision - December 2019 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2019-12-03

Media Release
Statement by Philip Lowe, Governor: Monetary Policy Decision
3 December 2019
At its meeting today, the Board decided to leave the cash rate unchanged at 0.75 per cent.
The outlook for the global economy remains reasonable. While the risks are still tilted to the
downside, some of these risks have lessened recently. The US–China trade and technology disputes
continue to affect international trade flows and investment as businesses scale back spending plans
because of the 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 steps
to support the economy while continuing to address risks in the financial system.
Interest rates are very low around the world and a number of central banks have eased monetary policy
over recent months in response to the downside risks and subdued inflation. Expectations of further
monetary easing have generally been scaled back. Financial market sentiment has continued to improve and
long-term government bond yields are around record lows in many countries, including Australia.
Borrowing rates for both businesses and households are at historically low levels. The Australian dollar
is at the lower end of its range over recent times.
After a soft patch in the second half of last year, the Australian economy appears to have reached a
gentle turning point. The central scenario is for growth to pick up gradually to around
3 per cent in 2021. The low level of interest rates, recent tax cuts, ongoing spending on
infrastructure, the upswing in housing prices 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
spending. Other sources of uncertainty include the effects of the drought and the evolution of the
housing construction cycle.
The unemployment rate has been steady at around 5¼ per cent over recent months. It is
expected to remain around this level for some time, before gradually declining to a little below
5 per cent in 2021. Wages growth is subdued and is expected to remain at around its current
rate for some time yet. A further gradual lift in wages growth would be a welcome development and is
needed for inflation to be sustainably within the 2–3 per cent target range. Taken
together, recent outcomes suggest that the Australian economy can sustain lower rates of unemployment
and underemployment.
Inflation is expected to pick up, but to do so only gradually. In both headline and underlying terms,
inflation is expected to be close to 2 per cent in 2020 and 2021.
There are further signs of a turnaround in established housing markets. This is especially so in Sydney
and Melbourne, but prices in some other markets have also increased recently. In contrast, new dwelling
activity is still declining 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 easing of monetary policy this year is supporting employment and income growth in Australia and a
return of inflation to the medium-term target range. The lower cash rate has put downward pressure on
the exchange rate, which is supporting activity across a range of industries. It has also boosted asset
prices, which in time should lead to increased spending, including on residential construction. Lower
mortgage rates are also boosting aggregate household disposable income, which, in time, will boost
household spending.
Given these effects of lower interest rates and the long and variable lags in the transmission of
monetary policy, the Board decided to hold the cash rate steady at this meeting while it continues to
monitor developments, including in the labour market. The Board also agreed that due to both global and
domestic factors, it was 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 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.
Media and Communications