Australia's central bank keeps rates on hold

Australia's central bank left interest rates at a record low Tuesday, sparing the country a rude shock ahead of Christmas, as wage growth stagnates and household debt rises. "The low level of interest rates is continuing to support the Australian economy," said Reserve Bank governor Philip Lowe.
"Taking account of the available information, the board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time." The Reserve Bank slashed rates by 300 basis points to 1.50 percent between November 2011 and August last year.
The decision to stand pat came a day before the release of July-September economic growth data, with economists forecasting 0.8 percent expansion on-quarter, lifting the annual rate to 3.1 percent. Unemployment continues to fall while labour force participation rises and despite "reports that some employers are finding it more difficult to hire workers with the necessary skills", the bank said.
But wage growth was likely to remain low for some time with inflation flat, it added, while also highlighting uncertainty around the outlook for household consumption. "Household incomes are growing slowly and debt levels are high," it said. "NAB expects the RBA to begin a gradual lifting of interest rates in the second half 2018 as the unemployment rate falls more convincingly," said National Australia Bank's chief markets economist Ivan Colhoun.
But other analysts are not expecting a hike until 2019. "The Reserve Bank of Australia didn't say as much ... but its Christmas wish must surely be for much more economic growth and a lot more inflation next year," said Capital Economics' Paul Dales.
"We don't think any such wish will be granted, which is why we continue to believe that interest rates won't rise for at least another 18 months yet." The Australian dollar edged up to 76.40 US cents after the announcement, from 76.30 US cents before. Lowe said the currency had been rangebound for the past two years and "an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast". Australia's central bank meets again in February.