SYDNEY (AFP) – Australia’s central bank left interest rates at a record low yesterday, sparing the country a rude shock ahead of Christmas, as wage growth stagnates and household debt rises.
“The low level of interest rates is continuing to support the Australian economy,” said Reserve Bank governor Philip Lowe.
“Taking account of the available information, the board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
The Reserve Bank slashed rates by 300 basis points to 1.50 per cent between November 2011 and August last year. The decision to stand pat came a day before the release of July-September economic growth data, with economists forecasting 0.8 per cent expansion on-quarter, lifting the annual rate to 3.1 per cent.
Unemployment continues to fall while labour force participation rises and despite “reports that some employers are finding it more difficult to hire workers with the necessary skills”, the bank said. But wage growth was likely to remain low for some time with inflation flat, it added, while also highlighting uncertainty around the outlook for household consumption.
“Household incomes are growing slowly and debt levels are high,” it said.
“The National Australia Bank (NAB) expects the Reserve Bank of Australia (RBA) to begin a gradual lifting of interest rates in the second half 2018 as the unemployment rate falls more convincingly,” said NAB’s chief markets economist Ivan Colhoun. But other analysts are not expecting a hike until 2019.
“The RBA didn’t say as much … but its Christmas wish must surely be for much more economic growth and a lot more inflation next year,” said Capital Economics’ Paul Dales.
“We don’t think any such wish will be granted, which is why we continue to believe that interest rates won’t rise for at least another 18 months yet.”