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Australia's Central Bank Keeps Interest Rates Unchanged on Soft Wages Outlook

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03/06/2018 | 05:03am CEST

By James Glynn

SYDNEY--The Reserve Bank of Australia on Tuesday kept interest rates on hold for a 17th straight policy meeting and signaled it had no plans to adjust policy settings anytime soon.

The RBA maintained the official cash rate at a record low 1.5%, and pointed to soft wage growth and prospect of benign inflation in the coming months, as reasons for sticking to its current cautious course.

"Notwithstanding the improving labor market, wage growth remains low. This is likely to continue for a while yet," RBA Gov. Philip Lowe said in a statement accompanying the decision.

"Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing. A gradual pick-up in inflation is, however, expected as the economy strengthens," he added.

In a string of speeches and official reports through February, the RBA made it clear it is waiting for signs of a pickup in wages before it can consider raising interest rates.

Despite a strong recent trend of job growth and surging business confidence, Australian household budgets are under strain with recession-like wages growth combined with record debt levels. The dangerous mix of high debt and low wage growth has led the RBA to keep interest rates on hold since mid-2016.

The RBA's guidance means it is likely to lag well behind other major central banks such as the Federal Reserve, the Bank of Canada, and the Bank of England, in pushing up rates.

The RBA has warned that reaching full employment, which is believed to be around 5%, might be difficult to achieve given high levels of underemployment. Unemployment now sits at 5.5%.

That means wages pressures are set to remain muted, keeping inflation below or near the bottom of the RBA's desired 2-3% target band.

Financial markets are pricing little risk that the RBA will raise interest rates before the end of the year.

Fourth-quarter gross domestic product figures due Wednesday are expected to show the economy is growing modestly, with weak incomes growth and falling personal savings expected to be key features.

Write to James Glynn at [email protected]

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