WEAK international trade has been identified as a factor by the Reserve Bank of Australia in its decision to lower the cash rate 25 basis points to 1.25%.

The decision was announced on Tuesday afternoon in a statement by RBA governor Philip Lowe.

“The board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target,” Mr Lowe said.

He noted the outlook for the global economy remained reasonable, although the risks from trade disputes have increased.

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“Growth in international trade remains weak and the increased uncertainty is affecting investment intentions in a number of countries,” Mr Lowe said.

“In China, the authorities have taken steps to support the economy, while addressing risks in the financial system.

“In most advanced economies, inflation remains subdued, unemployment rates are low and wages growth has picked up.”

Mr Lowe said global financial conditions remained accommodative, with long-term bond yields and risk premiums being low.

“In Australia, long-term bond yields are at historically low levels,” he said.

“Bank funding costs have also declined further, with money-market spreads having fully reversed the increases that took place last year. The Australian dollar has depreciated a little over the past few months and is at the low end of its narrow range of recent times.”

Mr Lowe said the Australian economy was expected to grow by around 2¾% in 2019 and 2020, supported by increased investment in infrastructure and a pick-up in activity in the resources sector.

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