SYDNEY • Australia’s central bank held interest rates, remaining on the sidelines as lending curbs take steam out of east-coast housing markets and as prospects for a pick-up in business investment emerge.
“The recent data have been consistent with the bank’s expectation that growth in the Australian economy will gradually pick up over the coming year,” governor Philip Lowe and his board said after leaving the cash rate at 1.5% yesterday, as expected by markets and economists. “The outlook for non-mining investment has improved recently and reported business conditions are at a high level.”
“Housing prices have been rising briskly in some markets, although there are signs that conditions are easing, especially in Sydney,” Lowe said in the statement. “Residential construction activity remains at a high level, but little further growth is expected.”
“Wage growth remains low,” he said. “This is likely to continue for a while yet, although stronger conditions in the labour market should see some lift in wages growth over time.”
“There were a few evolutions in the accompanying statement — relative to last month — which were generally in a marginally hawkish direction,” said Adam Boyton at Deutsche Bank AG. “We remain less convinced that ‘stronger conditions in the labour market should see some lift in wages growth’.”
The Reserve Bank of Australia (RBA) has kept rates unchanged since last August, refraining from joining global peers in signalling plans to withdraw stimulus amid concern about weak wages and tepid inflation. Its prior easing cycle was designed to cushion a transition to services and manufacturing and away from mining, by encouraging firms to hire and invest. While the labour market has strengthened this year, there’s been little movement on spending until last week’s capital expenditure data signalled some improvement.
On the Aussie dollar’s strength, Lowe reiterated the currency “is expected to contribute to the subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.
Concerns on consumption — which accounts for about 55% of gross domestic product — remain key with wage growth still at record lows, soaring energy bills and high household debt.
Iron ore has rebounded in recent weeks as mills in China benefit from the government shuttering capacity, helping absorb increased ore supplies from Australia. Lowe noted that “commodity prices have risen recently, although Australia’s terms of trade are still expected to decline over coming years”. — Bloomberg