Reserve Bank of Australia leaves interest rates on hold at record low of 1.5 per cent in December

The Reserve Bank of Australia has left the official cash rate on hold at 1.5 per cent for the 16th month in a row as wages and inflation remain flat.

The board noted strong employment growth but remained concerned about the outlook for household consumption, which was a “continuing source of uncertainty”, while inflation had remained stubbornly below the bank’s target of 2 to 3 per cent and wage growth appeared to be going nowhere fast.

“Household incomes are growing slowly and debt levels are high,” RBA governor Philip Lowe said in a statement.

Dr Lowe offered hope to workers, noting some businesses were struggling to find the right employees, meaning they might have to start lifting salaries.

“There are reports that some employers are finding it more difficult to hire workers with the necessary skills. However, wage growth remains low,” he said.

“This is likely to continue for a while yet, although the stronger conditions in the labour market should see some lift in wage growth over time.”

Dr Lowe signalled the board was closely watching developments in other countries that had been moving to return interest rates to more normal levels.

“In a number of economies, there has been some withdrawal of monetary stimulus, although financial conditions remain quite expansionary,” Dr Lowe said.

The need for a rate rise to cool overheating housing markets locally has been partially offset by new figures from the Australian Prudential Regulation Authority. The data released on Tuesday showed interest-only housing loans fell again in the three months to September 30 after a government crackdown on risky lending.

“Nationwide measures of housing prices are little changed over the past six months, with conditions having eased in Sydney,” the RBA statement said.

More broadly, the economy is gearing up for a mixed gross domestic product (GDP) result when the national accounts are released on Wednesday, with negative balance of payments and government spending figures.

Figures from the Australian Bureau of Statistics on Tuesday showed another round of sluggish retail results, with rises led by cafes, restaurants and takeaway food services driving the 0.5 per cent growth in October.

Government investment dropped 7.5 per cent between June and September, leading to predictions of a soft GDP rise of between 2.7 and 3 per cent for the year.

“The cash rate will stay on hold until wages growth and core inflation are on a sustained upward trend,” Commonwealth Bank economist Gareth Aird said.

“The latest data on both wages and inflation suggests that while we have probably hit inflection points, we remain some way off from a rate rise, indeed the RBA’s own forecasts for core inflation are consistent with policy on hold over the next year. ”

Australian National University shadow RBA board member Mark Crosby said he was encouraged by the Organisation for Economic Co-operation and Development’s calls for the bank to eventually move towards higher interest rates.

“The economy is clearly doing well, and monetary policy has done its job in terms of supporting the economy in recent years,” he said.

“It is time for the central bank to start normalising policy, and for other policy arms to support labour markets and productivity.”

COURTESY BY: http://www.smh.com

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