Bancos centrales

Comments by RBA governor, Philip Lowe:

• Expects cash rate to remain at current level for some years, but not forever

• RBA doing all it can to lower funding costs, support supply of credit to businesses

• RBA will not be buying bonds directly from the government

• May take some time for yields to fall from current level to 25 bps

• Expects yield target to be removed before raising the cash rate

• Expects a recovery once the virus is contained

• Also expecting significant job losses as the virus fallout hits

• Will maintain current setting of rates until a strong recovery is in place

• Nothing is off the table with policy

• Expects bond yields across term structure to decline

• Will do whatever is necessary to make sure credit is available

• Says that we've done all we can do with the cash rate

• The focus now is on taking other measures to support lending

• Board decided to lower the cash rate by 25 basis points to 0.50 per cent.

• The Board took this decision to support the economy as it responds to the global coronavirus outbreak.

• The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected.

• Prior to the outbreak, there were signs that the slowdown in the global economy that started in 2018 was coming to an end.

• It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.

• Policy measures have been announced in several countries, including China, which will help support growth.

• Inflation remains low almost everywhere and unemployment rates are at multi-decade lows in many countries.

• Long-term government bond yields have fallen to record lows in many countries, including Australia.

• The unemployment rate increased in January to 5.3 per cent and has been around 5¼ per cent since April last year.

• Wages growth remains subdued and is not expected to pick up for some time.

• A 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.

• QE is "not on our agenda" at this point

• QE would only be considered should cash rate reach 0.25%

• There may come a point when QE would help but I "don't expect us to get there"

• Still expects economy to move in the right direction, albeit gradually

• QE would be considered if evidence accumulates that we were unlikely to meet policy goals

• Need evidence that moving away from, rather than towards, goals for full employment, inflation

• Board would then consider buying government bonds as only QE measure

• Would hope other public policy options were also on the agenda

• Use of all QE measures could create "inaction" bias for other policy makers

• Negative interest rates in Australia are extraordinarily unlikely

• We have no appetite" to make outright purchases of private sector assets as part of qe

• No need to provide extra liquidity through market operations

• International experience suggests QE does put downward pressure on both rates and exchange rate

• Would need to balance these positive effects with possible side-effects

• Would need to consider effects of bond buying on market functioning

• Strong evidence that various central bank liquidity measures worked during crisis

• Less convinced that other unconventional measures worked, jury still out

The Reserve Bank of Australia is ready to ease monetary policy further if needed, Governor Philip Lowe said.

"If demand growth is not sufficient, the Board is prepared to provide additional support by easing monetary policy further," he said.

It is reasonable to expect an extended period of low interest rates, Lowe added. It will be some time before inflation is comfortably back within the target range.

The RBA had reduced its benchmark rate in June and July, by 25 basis points each. This was the first back-to-back rate cut since mid-2012.

The governor said two rate cuts will support demand. Recent tax reductions, higher commodity prices, some stabilization in the housing market, ongoing investment in infrastructure and a lift in resource sector investment will also support the economy, he noted.

The bank expects these factors together with rate cuts to put pressure on the economy's supply capacity and lift inflation in a reasonable timeframe, Lowe said.

• Lower rates to hold AUD lower than otherwise

• spare capacity likely to remain in labour market for "some time"

• lower borrowing costs to free up cash for consumer spending

• Board recognised uneven effect of lower rates on different households

• extent of spare capacity meant rate cut unlikely to lead to risky rise in borrowing

• labour demand being met by rise in participation, rather than fall in unemployment rate

• Board saw prospects of lift in household income, support from tax rebates signs of stabilisation in Sydney, Melbourne housing markets

• funding costs for major Australian banks had reached historic low

• retail data suggested discretionary spending remained soft in Q2

• Board noted significant change in outlook for monetary easing globally, esp US

• risks from trade disputes remained high, inflation subdued in developed world

• Economic forecasts had assumed rates at 1% by year-end

• The board has not yet made a decision, much depends on labour market

• Rate decision was not in response to deterioration in outlook since May

• Rate cut is to lead lower AUD than otherwise would have been the case

• Easing aimed at spurring jobs growth, lifting inflation

• One option is for fiscal support, including spending on infrastructure

• Banks should fully pass through rate cut through mortgage rates

• Well aware that savers will be disappointed by rate cut

• the Australian labour market remains strong.

• there has been a significant increase in employment and the unemployment rate is at 4.9%

• the vacancy rate remains high and there are reports of skills shortages in some areas.

• the stronger labour market has led to some pick-up in wages growth, which is a welcome development.

• continued improvement in the labour market is expected to see some further lift in wages growth over time, although this is still expected to be a gradual process.

• GDP data paint a softer picture of the economy than do the labour market data

• outlook for the global economy remains reasonable

• growth has slowed and downside risks have increased

• growth in international trade has declined

• investment intentions have softened in a number of countries

• global financial conditions remain accommodative and have eased recently

• risk premiums remain low

• equity markets have also risen and are being supported by growth in corporate earnings

• the Australian dollar has remained within its narrow range of recent times

• lower rates might be appropriate if unemployment rises, inflation stalls

• probabilities on next rate move "appear to be more evenly balanced"

• there are scenarios where the next move in rates is up, others where it is down

• board does not see strong case for a near-term change in cash rate

• will be monitoring developments in labour market closely

• if jobs and wages rising, will be appropriate to raise cash rate at some stage

• lower rates might be appropriate if unemployment rises, inflation stalls

• in position to maintain current policy while assessing shifts in global economy, household spending

• downside risks to domestic economy have increased

• household consumption expected to grow around 2.75 pct over next couple of years

• still expect economy to grow at reasonable pace over next couple of years

• sees economy expanding by around 3 pct in 2019, 2.75 pct over 2020

• expects Q4 GDP to be stronger than surprisingly soft Q3 outcome

• unemployment declining to around 4.75 pct over the next two years

• underlying inflation to rise to about 2 pct later this year, 2.25 pct by end of 2020

• Low rates supporting economy

• Progress on unemployment, inflation expected to be gradual

• Central scenario for gdp growth to average around 3 pct this year

• Central scenario for gdp growth to slow in 2020 due to weaker resource exports

• Inflation remains low and stable

• Central scenario for inflation 2 percent in 2019, and 2.25 pct in 2020

• Household consumption remains a source of uncertainty

• Main domestic uncertainty remains around household spending, effect of falling house prices

• Consumption data have been volatile

• Growth in household income expected to pick up and support spending

• Labour market remains strong

• Wage growth to pick up gradually over time

• Further fall in unemployment rate to 4.75 pct expected

• Gdp growth in september quarter was weaker than expected

• Credit conditions for some borrowers are tighter than they have been

• Global economy slowed in second half of 2018, downside risks have increased

• Seeing some signs of slowdown in global trade, partly stemming from trade tensions

• Australian dollar has remained within the narrow range of recent times

• Australia's terms of trade have increased, expected to decline over time

• Have more staff looking at China than any other single overseas economy

• Australia, China together can be 'strong voice' for importance of open international trade, effective regional co-operation

• Single biggest risk to Chinese economy lies in financial sector and the big run-up in debt

• Had been concerned our forecast may have been little optimistic, but now more confident in it

• Important uncertainty relates to household balance sheets

• Recent data suggests wage growth has troughed

• Current tensions around trade policy a "significant risk" to global economy

• Wages expected to pick up gradually as leading indicators pointed to more job gains

• Still uncertainties remain on extent, speed of pick-up in wages and inflation

• Strength in employment has supported household consumption so far

• High household debt poses uncertainty for consumption outlook

• Conditions in global economy positive, China debt levels an important risk

• Progress on unemployment and inflation likely to be only gradual

• Given current circumstances, board agreed next move in rates likely to be up, rather than down

• March qtr inflation data in-line with bank's expectations

• Inflation to remain low for some time given retail competition, slow wage growth