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Australia central bank keeps rate at record low; ready to ease further

The Reserve Bank of Australia left the cash rate at a record low of 1.00% and reiterated its willingness to ease policy further to curb unemployment and bring inflation closer to its target.

The central bank said global trade tensions are affecting investment, meaning that the risks to the global economy are tilted to the downside.

The Australian economy grew at a weaker-than-expected rate in the first half as low income growth and declining housing prices weighed on household consumption. The central bank expects Australian GDP to grow by about 2.5% in 2019 and 2.75% in 2020.

The outlook on consumption remains uncertain, though a pick-up in household disposable income growth and a stabilization of the housing market are expected to support spending, RBA Governor Philip Lowe said.

Headline inflation came in at 1.6% year over year in the quarter to June, below the central bank's 2% to 3% target. Lowe said it is likely to take longer than expected for inflation to return to 2%, as wage growth remains subdued.

The central bank expects inflation to reach a little under 2% over 2020 and slightly above 2% in 2021.

Lowe repeated his assessment of employment conditions, saying there has been "little inroad into the spare capacity in the labor market." The bank expects the unemployment rate to decline to about 5% over the next couple of years from 5.2% in June.

The Australian dollar was trading 0.6% higher versus its U.S. counterpart as of 3:50 a.m. ET.