Little chance of shift in cash rate

AUSTRALIA’S sluggish rate of wages growth is expected to convince the Reserve Bank to leave its official interest rate on hold when the board meets today.

Economists say the RBA is almost certain to leave the cash rate at its record low of 1.5 per cent for the 20th month in a row, with the glacial rate of improvement in the nation’s pay packets the main driver of the decision.

Commonwealth Bank senior economic analyst Belinda Allen said the RBA’s view of the future direction of wages growth and labour market conditions would be closely examined by market watchers for indications of when rates may go up.

The United States Federal Reserve hiked interest rates by 0.25 per cent in March and signalled more increases could be expected on the back of recent improvements in US economic growth and unemployment numbers.

Australia’s situation is not yet in line with that of the US and Ms Allen said it was “universally anticipated” that the RBA would not move on rates.

“Wages data shows still feeble growth, especially in the private sector where the large bulk of workers earn their living,” Ms Allen said.

HSBC Australia chief economist Paul Bloxham said he believed the RBA would have to be convinced that wages were growing fast enough to start driving inflation higher before moving rates.