(Australian Associated Press)
A continuing slide in the number of hours people are working and ongoing worries about household debt convinced Australia’s central bank that the official interest rate should remain unchanged at its last meeting.
Glimmers of hope in some areas of employment, better business conditions and evidence that a regulatory crackdown on investor lending is starting to bite encouraged the Reserve Bank of Australia board’s view of the nation’s economic wellbeing, minutes from its June meeting show.
However a fall in the total number of hours worked, persistently weak wages growth and a hugely varied housing market – characterised by strong east coast capital city prices and softness elsewhere – were cited as key factors that led the RBA to leave the cash rate unchanged at 1.5 per cent.
The RBA board noted that a 0.5 per cent increase in wages in the March quarter suggested wage growth had “stabilised” at low levels, but remained particularly low in the mining sector.
“While wage growth is likely to remain subdued for some time yet, there had been isolated reports of localised and skills-specific labour shortages feeding into higher wages,” the minutes said.
“Although employment growth had been stronger in recent months, growth in total hours worked had declined.”
While various forward-looking indicators pointed to continued growth in employment, the bank said wage growth remained low “and this was likely to remain the case for some time yet”.
Economists at Citi said the minutes pre-dated a surprise fall in the May unemployment rate to 5.5 per cent, but the drop was unlikely to have eased the RBA’s concerns.
NAB economist Tapas Strickland said the minutes signalled more optimism about the state of the economy than the central bank had shown in its post-decision statement on June 6, although wages growth remained a point of concern.
“Today’s minutes add to the further positive shift in the RBA’s assessment of the economy,” Mr Strickland said.
“The recent strength in the labour market appears to have alleviated the RBA’s concerns for now, though they are concerned about elevated underemployment and weak growth in hours.”
Attention will now shift to when the RBA will start lifting rates, he said, as other central banks around the world show signs of preparing to hike their cash rate.