RBA boss upbeat on pay rise front

THE Reserve Bank is increasingly confident that sunnier business conditions will prompt bosses to lift wages as corporate Australia searches for the formula to prise open consumer wallets.

RBA governor Philip Lowe, who yesterday held the cash rate at 1.5 per cent for a 13th straight month as expected, was optimistic of near-term pay rises despite concerns about debt-strapped households’ ability to spend.

While reiterating wage growth was low, at just 1.9 per cent for the past year, Dr Lowe said “stronger conditions in the labour market should see some lift in wages growth over time”.

Economic growth would gradually pick up “over the coming year”, he said in yesterday’s monetary policy statement, a slightly more upbeat tone than August’s commentary.

The consumer has been missing in action this year, with shoppers watching their spending on clothing and gadgets while juggling higher energy bills and, in some cases, higher mortgage repayments.

Dr Lowe also indicated the long-awaited baton pass from the resources sector to the rest of the economy was nearly complete, although economists expect mining spending is yet to bottom out.

“The decline in mining investment will soon run its course,” Dr Lowe said.

He appeared more relaxed on property prices, pointing out the Sydney market appeared to be “easing”, but warned homebuilding activity was probably near its peak.

“The RBA’s decision to leave rates on hold was no real surprise,” ASR Wealth Advisers’ Cai Lewis said.

“Between a red-hot property market and anaemic wage growth, their hands are tied.”

National Australia Bank chief economist Alan Oster said Dr Lowe’s use of the word “solid” when describing jobs growth prospects was the RBA’s strongest tone on employment for some time.

However, the governor’s admission “little further growth” was expected in home building — which has ramifications for spending on items such as furnishings and fittings — meant there was a dark cloud on the horizon, he said.

The dollar was fetching US79.75c late yesterday, up about US0.2c on the day.