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Financial News: Australia Lowers Key Rate For Second Straight Meeting

Australia Lowers Key Rate For Second Straight Meeting

07/02/2019 - 03:30:00 (RTTNews)

(RTTNews) - Australia's central bank lowered its key interest rate by a quarter point for the second straight meeting to address slowing growth and rising unemployment.

The board of the Reserve Bank of Australia, governed by Philip Lowe, cut the cash rate to a record 1.00 percent from 1.25 percent, the bank said in a statement on Tuesday. The rate cut decision was widely expected.

This was the first back-to-back rate cut since mid-2012. The bank had reduced its rate by 25 basis points in June.

"This easing of monetary policy will support employment growth and provide greater confidence that inflation will be consistent with the medium-term target," the bank said.

Policymakers noted that the reduction will help make further inroads into the spare capacity in the economy.

"The Board will continue to monitor developments in the labor market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time," the bank said.

The statement suggested that RBA hasn't shut the door on more easing, but further rate cuts will be contingent upon a deviation in growth, labor market and inflation outcomes from the current set of forecasts, Sally M Auld at JP Morgan said.

Marcel Thieliant, an economist at Capital Economics, said the RBA remains too optimistic about the outlook for the labor market and inflation. Accordingly, the economist sees additional rate cuts in November and February.

Policymakers noted that the uncertainty from trade disputes is affecting investment and risks to the global economy are tilted to the downside.

On the domestic side, uncertainty continues to be the outlook for consumption, although a pick-up in household disposable income growth is expected to support spending. Further, most housing markets conditions remain soft and growth in housing credit stabilized, the bank noted.

Although inflation pressures remain subdued, inflation is anticipated to pick up on petrol price hike in the June quarter.

Further, strong employment growth led to an increase in wage growth in the private sector. According to RBA, labor market outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.

Official data showed that the economy expanded at a slower pace of annualized 1.8 percent in the first quarter and the unemployment rate remained above 5 percent in May.

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