Australia central bank holds rates with inflation soft

SYDNEY: Australia’s central bank held interest rates at a record low yesterday even as the economy grows strongly, with officials taking into account soft inflation figures and weak wages growth.

The cash rate has been unchanged at 1.5 per cent since the Reserve Bank of Australia ( RBA) last cut it in August 2016, to support non-mining industries as an unprecedented investment in resources waned.

“The low level of interest rates is continuing to support the Australian economy,” RBA governor Philip Lowe said in a statement after the monthly board meeting.

“The board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

The economy expanded 0.9 per cent in the March- June quarter, following 0.7 per cent growth in the previous three months, supported by increasing exports, and consumer and government spending.

It took the annual rate of growth to 3.4 per cent – the fastest since September 2012.

The RBA acknowledged the strong figures but said the outlook for household spending remained a “continuing source of uncertainty”, while the growth in wages – which would help to lift inflation – remained slow.

“Growth in household income remains low and debt levels are high,” Lowe said.

“Wages growth remains low, although it has picked up a little. The improvement in the economy should see some further lift in wages growth over time, although this is likely to be a gradual process.”

JP Morgan economist Tom Kennedy said the bank was unlikely to lift interest rates until the jobless rate, which is at 5.3 per cent, fell below five per cent.

“If it moves below five per cent, that would give the RBA some confidence that the economy is moving in the right direction and wages would pick up, and along with that, inflation,” Kennedy told AFP.

“Our view is that the jobless rate would stabilise at current levels and ... consumers will remain relatively hamstring by quite weak income growth. — AFP