The Reserve Bank of Australia has left the official cash rate on hold at 1.5 per cent at its last meeting before Christmas, ending the year the same way it started – with interest rates at a record low.
In explaining why it had left the cash rate on hold for the 16th month in a row, the RBA board noted wage growth was going nowhere fast and inflation remained below the target of 2 per cent, as the Turnbull government prepares for mixed gross domestic product results when the national accounts are released on Wednesday.
The RBA warned household consumption in the lead-up to the festive shopping season was a “continuing source of uncertainty”.
“Household incomes are growing slowly and debt levels are high,” RBA governor Philip Lowe said in a statement.
But Dr Lowe offered hope to workers, noting some businesses were struggling to find the right workers in a time of high employment and might have to start lifting salaries to avoid a skills shortage.
“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 normal levels.
“In a number of economies, there has been some withdrawal of monetary stimulus, although financial conditions remain quite expansionary,” he said.
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 a higher cash rate.
“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.”
Figures from the Australian Prudential Regulation Authority released on Tuesday undermined the need for a rate rise to cool overheating housing markets.
The regulator said 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.
The economy is gearing up for a mixed GDP result when the national accounts are released on Wednesday, with negative balance of payments and government spending results.
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.
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.
Commonwealth Bank economist Gareth Aird said the cash rate would stay on hold until wages growth and core inflation were on a sustained upward trend.
“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,” he said.
“Indeed the RBA’s own forecasts for core inflation are consistent with policy on hold over the next year.”
This story Administrator ready to work first appeared on Nanjing Night Net.