SYDNEY (Reuters) - Australia’s central bank is sounding more upbeat about a pick-up in economic activity, but high household debt and slow wage growth mean interest rates are set to stay at all-time lows for some while yet, minutes of its June policy meeting showed on Tuesday.
The Reserve Bank of Australia (RBA) expects growth in the country’s A$1.8 trillion economy to crest above 3 percent this year, helped by strong exports and public spending.
However, policy makers saw a downside risk to the global economic outlook from trade tensions between the United States and China, as well as broader tariff disputes.
On Friday, the White House enacted tariffs on $50 billion in Chinese goods. Beijing quickly responded with a 25 percent levy on 659 U.S. products, worth $34 billion, ranging from soy beans and autos to seafood.
The latest spat knocked the Australian dollar AUD=D4 to a one-year low on Tuesday, a development that should support exports and please the central bank.
The RBA has repeatedly warned that any rise in the currency could hurt economic growth and inflation at home.
Australia’s gross domestic product (GDP) jumped to 3.1 percent last quarter from the December quarter’s 2.4 percent, the fastest annual expansion in almost two years.
However, inflation was still below the RBA’s 2-3 percent target band as wages growth crawled near the slowest pace on record. Also, there was still some spare capacity in the labor market, despite a surge in jobs since early 2017.
The RBA sees further, yet gradual, progress in reducing unemployment and returning inflation to target.
Only last week, Governor Philip Lowe said any increase in cash rates was still “some time away” as wage growth and prices remain tepid.
The RBA last cut rates to 1.5 percent in August 2016 and has since notched up the longest period without a move in modern history. Financial markets are wagering this steady spell could last well into 2019.
The outlook for household consumption remained a source of uncertainty, “given that household income growth had been slow and debt levels remained high,” the minutes showed.
The RBA said stricter lending criteria by banks had helped cool housing markets and contain the build-up of risk on household balance sheets.
While home prices had slipped in Sydney and Melbourne, they were still 40 percent higher than in 2014, the minutes noted.
Reporting by Swati Pandey, Editing by Wayne Cole