Tuesday, 15 October 2019
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Australia Cuts Key Rate as Global Threats, Unemployment Rise
Tuesday, 1 October 2019 12:10 WIB | FISCAL & MONETARY |MoneterRBA

Australia's central bank lowered interest rates for the third time this year as it tries to shield the economy from a slew of offshore risks, and signaled it could ease even further.

Reserve Bank chief Philip Lowe reduced the cash rate by 25 basis points to 0.75%, as predicted by money markets and most economists, bringing the lower bound of policy into view and raising the prospect of unconventional measures. The RBA's move is also designed to prevent a rebound in the depreciating currency that might have been triggered if it stood pat while global counterparts eased.

"The board will continue to monitor developments, including in the labor 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," Lowe said in his statement.

The Australian dollar was little changed, trading at 67.47 U.S. cents at 2:35 p.m. in Sydney.

The rate cut is designed to give maximum kick to a "gentle turning point" that Lowe says he is seeing in the economy following a year of weak growth. The governor is similarly trying to stem unemployment -- which climbed to 5.3% in August as a swelling labor force overwhelmed an increase in hiring -- and bolster consumer confidence in order to revive household spending.

Meanwhile, the clouds gathering offshore are increasingly menacing: Global growth is slowing, dragged down by the protracted U.S.-China trade conflict; financial hub Hong Kong is racked by protests; key trading partners Japan and South Korea are locked in confrontation; Brexit is looming; and to cap it all, President Donald Trump could face impeachment proceedings.

Against that backdrop, Lowe wants to stoke the local economy hard to try to ensure its resilience. At 0.75%, the cash rate is close to the lower bound that he and Deputy Governor Guy Debelle estimate is around 0.25%-0.5%. Both have previously said they don't expect to have to turn to bond buying and other alternative measures, as they wait and gauge the success of existing stimulus.

Another Boom?

Lowe executed cuts in June and July that have helped house prices rebound in Sydney and Melbourne, with data today showing national values rose the most since March 2017 last month. At the same time, a windfall from commodity prices is ongoing as iron ore futures hold close to a still-high $90.

The RBA's cuts mean more cash for households, many of which are also receiving tax rebates from the government. That™s in an economy already set to benefit from infrastructure spending and higher mining investment, as well as a depreciating currency that's helping exporters.

Lowe is scheduled to speak at the RBA board dinner later Tuesday, at 7.20 p.m. in Melbourne. There will be no Q&A session.

Source : Bloomberg

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