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Full statement of RBA June monetary policy meeting decision

Complete Statement by Australia's Reserve Bank – June 4, 2019

At today's meeting, the Board decided to lower the cash rate by 25 basis points to 1.25 percent. The Board took this decision to support employment growth and to give greater confidence that inflation would be in line with medium-term goals.

The outlook for the world economy remains reasonable, although the negative risks arising from trade disputes have increased. Growth in international trade is still weak and increased uncertainty affects investment intentions in a number of countries. In China, the authorities have taken measures to support the economy, while at the same time taking up risk in the financial system. In most advanced economies, inflation is still poorer, unemployment is low and wage growth has increased.

Global economic conditions remain accomodative. Long-term bond yields and risk premiums are low. In Australia, long-term bond yields are at historically low levels. Bank finance costs have also decreased further, with money market spreads having fully reversed the increase that took place last year. The Australian dollar has depreciated a bit in recent months and is at the low end of the narrow area in recent times.

The key scenario remains for the Australian economy to grow by around 2¾ per cent in 201[ads1]9 and 2020. This outlook is supported by increased investment in infrastructure and asset resource boosting, partly due to an increase in Australia's export prices. The greatest domestic uncertainty remains the outlook for household consumption, which is affected by a long period of low income growth and falling house prices. Some growth in household disposable income is expected, and this should support consumption.

Employment growth has been strong in the past year, labor participation has increased, unemployment remains high and there are reports of lack of competence in some areas. Despite this development, there has been little further element in savings capacity in the labor market late. Unemployment had been stable at around 5 per cent for some months, but crossed to 5.2 per cent in April. The strong employment growth over the past year has led to an increase in wage growth in the private sector, although general wage growth remains low. A further gradual increase in wage growth is expected, and this will be a welcome development. Overall, these labor market outcomes suggest that the Australian economy may maintain lower unemployment.

Recent inflation has been lower than expected, suggesting lower inflationary pressures across much of the economy. Inflation is, however, expected to pick up, and will be strengthened in the June quarter with higher petrol prices. The key scenario remains for underlying inflation to be 1¾ per cent this year, 2 per cent in 2020 and slightly higher after that.

The adjustment in established housing markets continues, following the earlier large rise in prices in some cities. The conditions remain soft, but in some markets the price decline has declined and the auction rate has increased. The growth in mortgage credit has also stabilized recently. Credit conditions have been tightened, and the demand for credit from investors has been undermined for some time. Mortgages remain low and there is strong competition for borrowers with high credit quality.

Today's decision to reduce the cash rate will help make further input to the savings capacity of the economy. It will help with faster progress in reducing unemployment and achieving more secure progress towards the inflation target. The Board will continue to monitor labor market developments 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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