The Reserve Bank of Australia (RBA), which has cut its rates three times by a total of 75 basis points since June, also confirmed its recent guidance that it is reasonable to expect an "extended period of low interest rates" will be required to reach full employment and the inflation target given global development and the space capacity in the economy.
While the RBA also repeated its description from September of the outlook for the global economy as "reasonable" with risks tilted to the downside, today it added a number of central banks had eased monetary policy in response to the persistent downside risks and subdued inflation, and "expectations of further monetary easing have generally been scaled back over the past month and financial market sentiment has improved a little."
RBA said the outlook for the Australian economy was little changed from three months ago and "after a soft patch in the second half of last year, a gentle turning point appears to have been reached."
Australia's economy has been decelerating in the last four quarters and grew only 1.4 percent year-on-year in the second quarter form 1.7 percent in the first quarter.
RBA's central scenario is for the economy to grow around 2.25 percent this year and then improve to around 3.0 percent in 2021.
This compares with its August forecast for growth this year of around 2.4 percent and 2.75 percent in 2020. A new quarterly forecast will be released on Nov. 8.
The Australian dollar has strengthened in the last few weeks and rose another 0.2 percent after the policy decision to 1.449 to the U.S. dollar. However, the Aussie remains 2 percent below its start of the year, having steadily depreciated since early 2018 as global economic growth began to slow.
The Reserve Bank of Australia issued the following statement:
"At its meeting today, the Board decided to leave the cash rate unchanged at 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 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 in response to the persistent downside risks and subdued inflation. Expectations of further monetary easing have generally been scaled back over the past month and financial market sentiment has improved a little. Even so, 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 the lower end of its range over recent times.
The outlook for the Australian economy is little changed from three months ago. After a soft patch in the second half of last year, a gentle turning point appears to have been reached. The central scenario is for the Australian economy to grow by around 2¼ per cent this year and then for growth gradually to pick up 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 in some 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 spending. Other sources of uncertainty include the effects of the drought and the evolution of the housing construction cycle.
Employment has continued to grow strongly and has been matched by strong growth in labour supply, with labour force participation at a record high. The unemployment rate has remained 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 remains 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.
The recent inflation data were broadly as expected, with headline inflation at 1.7 per cent over the year to the September quarter. The central scenario remains for inflation 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, especially in Sydney and Melbourne. 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 since June is supporting employment and income growth in Australia and a return of inflation to the medium-term target range. Given global developments and the evidence of the spare capacity in the Australian economy, 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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