Low wages growth checks rates

RESERVE Bank governor Philip Lowe has played the role of economic party pooper, refusing to share the newfound enthusiasm of international counterparts by serving up a muted assessment of Australia’s growth prospects.

The RBA, which yesterday left the cash rate on hold at 1.5 per cent for an 11th month, put paid to any suggestion of a near-term hike by reminding markets of the challenges to growth from low wages and high household debt.

“The Australian economy is expected to strengthen gradually, with the transition to lower levels of mining investment following the mining investment boom almost complete,” Dr Lowe said.

“At the same time, consumption growth remains subdued, reflecting slow growth in real wages and high levels of household debt.”

It is a stark contrast to comments last month from Bank of England governor Mark Carney and Bank of Canada’s Stephen Poloz, who appear more receptive to considering hikes.

“People were looking to the RBA and wondering if they’d join the global swing towards a more hawkish stance. Our view is that they weren’t going to do that because the Australian economy is in a different place,” JP Morgan economist Ben Jarman said yesterday.

Mr Jarman said most developed nations had ratcheted down their cash rate to emer- gency levels and had since seen a significant rebound in employment levels. In Australia, where the mining export boom shielded the economy to an extent, the downturn had not been so extreme, he said.

“We’ve been outperforming the rest of the world in a relative sense and it seems to have turned around the other way.”

He also noted the statement omitted June’s reference to the RBA’s mid-term growth target of 3 per cent, suggesting the target may be pushed out.