RBA Leaves Rates on Hold; Watching Impact of Fires, Virus
By James Glynn
SYDNEY--The Reserve Bank of Australia left its benchmark interest rate on hold Tuesday, but it remains somewhat cautious on the outlook in 2020 with its eye on stubbornly weak consumer spending and growing global growth risks linked to the spread of the new coronavirus.
The official cash rate remained at a record low of 0.75%, with the RBA pointing to evidence that three interest rate cuts in 2019 are boosting house prices and underpinning household debt reduction.
"The Board will continue to monitor developments carefully, including in the labor market. It remains prepared to ease monetary policy further if needed to support sustainable growth in the economy," RBA Gov. Philip Lowe said in a statement accompanying the decision.
Unemployment has been nudging lower in recent months, giving the RBA some time to pause and consider its next policy decision, economists said. A question mark remains over the impact of bush fires and the coronavirus on the outlook.
"In the short term, the bushfires and the coronavirus outbreak will temporarily weigh on domestic growth," Mr. Lowe added.
Mr. Lowe expected unemployment to remain around its current level of 5.1% for now, before moving lower over the medium term.
Retail spending has also strengthened a bit, offering some hope that consumer demand might be recovering tentatively. Still, data later this week is expected to show soft Christmas sales.
"The easing of monetary policy last year is supporting employment and income growth in Australia and a return of inflation to the medium-term target range," Mr. Lowe said.
Interest-rate cuts last year have put downward pressure on the Australian dollar, offered consumers time to reduce mortgage and credit-card debt as well as boosted asset prices, he added.
The RBA is tallying up the impact of recent wildfires across much of the country, with the bank's 2020 growth forecast set to be shaved in an update on the economy on Friday.
Australia is in the direct firing line of the coronavirus fallout given its heavy reliance on Chinese tourism. Any buckling of the Chinese economy would put a hefty dent in iron-ore exports from Australia's northwest mining region.
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