Statement by Philip Lowe, Governor: Monetary Policy Decision - August 2019 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2019-08-06

Media Release
Statement by Philip Lowe, Governor: Monetary Policy Decision
6 August 2019
At its meeting today, the Board decided to leave the cash rate unchanged at 1.00 per cent.
The outlook for the global economy remains reasonable. However, the increased uncertainty generated by
the trade and technology disputes is affecting investment and means that the risks to the global economy
remain tilted to the downside. In most advanced economies, unemployment rates are low
and wages growth has picked up, although inflation remains low. 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 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 further
and are at 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
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. Looking forward, growth in Australia is expected to strengthen gradually from here. The
central scenario is for the Australian economy to grow by around 2½ per cent over 2019
and 2¾ per cent over 2020. The outlook is being supported by the low level of interest
rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some housing
markets and a brighter outlook for the resources sector. The main domestic uncertainty continues to be
the outlook for consumption, although a pick-up 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.
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 unemployment rate is expected to
decline over the next couple of years to around 5 per cent. 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.
The recent inflation data were broadly as expected and confirmed that inflation pressures remain
subdued across much of the economy. Over the year to the June quarter, inflation was
1.6 per cent in both headline and underlying terms. The central scenario remains for inflation
to increase gradually, but it is likely to take longer than earlier expected for inflation to return to
2 per cent. 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.
Conditions in most housing markets remain soft, although there are some signs of a turnaround,
especially in Sydney and Melbourne. Growth in housing credit remains low. 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
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 Board will continue to monitor developments in the labour market closely and ease monetary
policy further if needed to support sustainable growth in the economy and the achievement of the
inflation target over time.
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