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Financial News: Australia Slashes Key Rate To Record Low

Australia Slashes Key Rate To Record Low

06/04/2019 - 04:19:00 (RTTNews)

(RTTNews) - Australia's central bank reduced its key interest rate by a quarter point to a historic low as policymakers aim to create more jobs and bring inflation to target.

The board of the Reserve Bank of Australia, governed by Philip Lowe, voted to lower the cash rate to a record low 1.25 percent from 1.50 percent.

Economists had widely expected monetary easing this month. Markets anticipate more rate cuts in the months ahead.

This was the first reduction since August 2016, when the bank cut the rate by 25 basis points.

Policymakers said they resorted to slash the rate so as to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.

"Today's decision to lower the cash rate will help make further inroads into the spare capacity in the economy," the board said.

Rate-setters were more worried about the global economic outlook, as they noted that downside risks stemming from the trade disputes have increased. Global trade growth remains weak and the increased uncertainty is affecting investment intentions in many economies, the bank said.

The RBA projected domestic economic growth of around 2.75 percent for this year and 2020. The outlook was underpinned by increased investment in infrastructure and a pick-up in the resource sector.

In the 2019 budget, the government projected the economy to grow by a solid 2.75 percent in 2017-18 and 3 percent in 2018-19 and 2019-20.

According to the RBA, the main uncertainty within the nation was household consumption, which was being affected by a protracted period of low income growth and declining housing prices.

Although inflation outcomes have been lower than expected, the bank anticipates it to pick up driven by the June quarter petrol price increase.

The bank forecast underlying inflation to be 1.75 percent this year, 2 percent in 2020 and a little higher after that.

The strong employment growth led to an increase in wage growth, the board said. A further gradual lift in wages growth is expected. The current labor market conditions indicate that the economy can sustain a lower rate of unemployment.

On housing market, the bank said conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased.

Housing credit growth also stabilized recently. Credit conditions were tightened and the demand for credit remained subdued for some time, RBA observed.

Further, the board said it will continue to monitor developments in the labor market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.

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