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Australian cenbank keeps rates unchanged, flags wages risks
May 2, 2017 / 4:40 AM / 7 months ago

Australian cenbank keeps rates unchanged, flags wages risks

SYDNEY (Reuters) - Australia’s central bank held rates steady for a ninth straight month on Tuesday in a widely expected decision as it balances the risk of rising household debt against subdued inflation and wages growth.

FILE PHOTO: A pedestrian walks past the Reserve Bank of Australia building in central Sydney April 23, 2010. REUTERS/Daniel Munoz/File Photo

The Reserve Bank of Australia (RBA) kept rates at a record low 1.5 percent, following easings in August and May last year. All 71 economists in a Reuters poll expected a steady outcome this week. [AU/INT]

The RBA sounded optimistic about the economy but retained its concerns about a “mixed” labor market. It added a new line in its statement, warning wages growth was expected to remain slow “for a while yet”.

“That’s the most pessimistic view on wages that we’ve seen from the RBA in a while,” said Michael Blythe, an economist at Commonwealth Bank of Australia. “It seems like they are confident that inflation is expected to remain low for sometime.”

Australia’s consumer price inflation tiptoed atop 2 percent last quarter for the first time since 2015 but the RBA’s favored measures of underlying inflation stayed below its target band of 2-3 percent.

RBA Governor Philip Lowe has on many occasions argued against the need for further stimulus, insisting any further cuts would be against the “national interest” as record-low cash rates have pushed households into a debt binge.

The Australian dollar AUD=D4 popped up briefly after the central bank statement, with investors focusing on some of the RBA's more upbeat assessments. It was last up 0.1 percent at $0.7534.

The RBA on Tuesday reiterated its expectation of economic growth of just above 3 percent over the next couple of years. Australia’s A$1.7 trillion economy expanded at 2.4 percent through the year to December 2016 - ahead of most of its rich world peers.


Lowe is worried about ballooning housing debt at a time when wages are growing at a record low pace.

Pedestrians walk past the main entrance to the Reserve Bank of Australia building in central Sydney, Australia, October 3, 2016. REUTERS/David Gray

In Sydney and Melbourne - Australia’s two most populous cities - home values are racing at a blistering 16 percent and 15 percent, respectively.

The surge in home prices in the major cities skidded to a halt in April, but the RBA made no reference to the slowdown in Tuesday’s statement, repeating prices have been rising “briskly” in some markets.

Australian regulators announced measures earlier this year to restrain lending to speculative property investors in a bid to cool the sizzling market and tighten lending standards.

On the flip side, Lowe painted a rosy picture of the global economy, which has helped lift commodity prices and in turn boosted Australia’s national income.

He also said the forward-looking indicators on labor market pointed to growing employment.

Data released last month showed Australia’s jobless rate steadied at a 5.9 percent in March as employment surged the most in 1-1/2 years, far exceeding expectations.

However, a rate hike remains unlikely for now.

“It’s too early for the RBA to think about raising rates given continuing low underlying inflation pressure, very high underemployment, record low wages growth and a still too high Australian dollar,” said Shane Oliver, chief economist at AMP.

“Signs that Sydney and Melbourne property markets may be starting to cool...add to the RBA’s flexibility on rates.”

Futures market <0#YIB:> imply scant chance of a change to interest rates this year.

Reporting by Swati Pandey; Editing by Sam Holmes

Our Standards:The Thomson Reuters Trust Principles.
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