Rates kept on hold

Hope for wage growth as interest rate stays put

THE head of the Reserve Bank has indicated interest rates will not move for some time, although when they do they will eventually rise by about 2 percentage points.

Speaking at a dinner in Brisbane last night after the RBA’s monthly meeting, at which the cash rate was left unchanged at a record low of 1.5 per cent, RBA governor Philip Lowe said the central bank was aiming to stimulate the economy without adding to already high levels of household debt.

Low interest rates were supporting jobs growth and helping inflation return to average levels, he said.

“These are positive developments,” Dr Lowe said.

“Even so, it will be some time before we are at what could be considered full employment in Australia and before underlying inflation is at the mid point of the mediumterm target range.

“This means that stimulatory monetary policy continues to be appropriate.”

The cash rate has been steady since August 2016.

THE Reserve Bank is confident 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 on the prospects for near-term payrises 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”.

In his statement announcing the decision to keep cash rate on hold, he said economic growth would gradually pick up “over the coming year” – a slightly more upbeat tone than his commentary last month.

The consumer has been missing in action this year, with shoppers watching their spending on discretionary items such as 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.

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

ASR Wealth Advisers senior adviser Cai Lewis said the RBA’s decision to leave rates on hold was no surprise.

“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 prospects for jobs growth was the RBA’s strongest tone on employment for some time.

However, the governor’s admission that “little further growth” was expected in homebuilding – which has ramifications for spending on furnishings and fittings – meant there was a dark cloud on the horizon, he said.

“There’s still a lot of building to be done, you don’t build half an apartment block and stop, but the cities that went hard in the apartment construction market – Perth, Brisbane and Melbourne – would be the ones to slide first.”