Interest rates look set to stay put for some time with the RBA talking down any further cuts out of fear of rising household debt.
RBA governor Philip Lowe has given a keynote address saying declining wage growth was ongoing and was putting downward pressure on household spending.
Dr Lowe said it was better for the economy to lift wages by increasing productivity and high-skill jobs instead of cutting interest rates.
“We have not sought to stimulate a rapid lift in inflation,” he said.
“The fact that the labour market has been generating sufficient jobs to keep the unemployment rate broadly steady has allowed us to be patient.”
One of the RBA’s main problems in continually cutting rates is that it continues to push up asset prices like property by stimulating borrowing.
“Faced with low inflation, low unemployment and low interest rates, investors are likely to find it attractive to borrow money to buy assets,” Dr Lowe said.
“Household debt is high and rising faster than the unusually slow growth in incomes.”
“Our judgement has been that seeking a more rapid pick-up in inflation through yet further monetary stimulus was likely to add to the medium-term risks.”
The RBA’s target rate for inflation is currently 2-3 per cent and the nation’s annual inflation rate sits below that.
Analysts say this will mean the RBA won’t lift rates either until conditions change. CommSec’s Craig James spoke to the ABC.
“Inflation isn’t rapidly moving below the target band, nor is it rapidly lifting back into the target band.”
Mr James said the economic figures do not give the RBA any reason to move rates up or down in the short term at least.
