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RBA Retains Record Low Interest Rate; Trims Growth Outlook


The Reserve Bank of Australia on Tuesday decided to keep its benchmark interest rate on hold, but flagged a downgrade to growth forecast for this year amid increasing downside risks to the global growth outlook, impact of falling house prices as well as uncertainty over household spending.

The board of the Reserve Bank of Australia, governed by Philip Lowe, voted to maintain the cash rate at 1.50 percent. The interest rate has remained at the current level since August 2016.

"Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time," the bank said in a statement.

The RBA noted that the low level of interest rates is continuing to support the Australian economy.

Policymakers expect further progress in the reduction of unemployment and inflation returning to target, although this progress is likely to be gradual.

The central bank warned that downside risks to global growth outlook have increased, with the trade tensions curbing global trade and some investment decisions.

The RBA cut its growth forecast to 3 percent for this year and a little lesser than 3 percent for 2020 due to slower growth in exports of resources. Previously, the central bank projected the GDP growth to average around 3.5 percent for 2019.

The GDP downgrade reflected uncertainty around the outlook for household spending and the effect of falling housing prices in some cities.

The bank cautioned that inflation remained low and stable. Although underlying inflation is expected to pick up over the next couple of years, the pick-up will be gradual and could take a little longer than expected. The central scenario is for underlying inflation to be 2 percent this year and 2.25 percent in 2020.

The RBA said that the housing markets in Sydney and Melbourne are going through a period of adjustment, after an earlier large run-up in prices. Housing conditions deteriorated notably in both markets and rent inflation remained low.

Growth in credit extended to owner-occupiers has eased, while the demand by investors has slowed noticeably due to changing dynamics of the housing market, it added.

Given the intensity of the housing downturn, the growth in dwellings investment and consumption is expected to slow in 2019, Ben Udy, an economist at Capital Economics, said.

The bank would reassess the economic outlook, if the downturn happens, and it is likely to cut rates before the end of the year in order to stimulate the economy, he added.

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