Reserve Bank leaves rates on hold at record low 1.5 per cent
The Reserve Bank of Australia has left the cash rate at a record-low 1.5 per cent, as sluggish wage growth and inflation put the board in a holding pattern for the 17th meeting in a row.
Reserve Bank governor Philip Lowe used the word "gradual" to describe Australia's economic recovery three times in his short statement on monetary policy on Tuesday, indicating the bank is in no rush to raise interest rates from their historic lows.
Providing some relief to heavily indebted homeowners, the market has in effect ruled out a change before November. Up to 80 per cent of forecasters surveyed by Bloomberg now believe the next rate rise will not be until February next year.
Wage growth inched up only slightly to 2.1 per cent in the three months to December, although the RBA now appears more confident that it has begun to climb out of the doldrums.
"[Wage growth] appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills," said Dr Lowe, indicating that a shortage of skilled workers should eventually lead to pay rises as employers bid up salaries.
"The low level of interest rates is continuing to support the Australian economy.
"Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual."
Notably the RBA retreated from its February statement that gross domestic product growth would pick up from 2.5 per cent to "above 3 per cent over the next couple of years", a day before the latest GDP figures are due to be released by the Australian Bureau of Statistics.
Instead, it said the economy would only “grow faster in 2018 than it did in 2017", as figures released on Tuesday showed a modest gain of 0.1 per cent in retail spending and 1.9 per cent in government spending in the three months to December.
The RBA's rhetoric on housing also shifted slightly, noting the Sydney and Melbourne housing markets "had slowed", rather than "are slowing", after Sydney house prices fell for the first year since 2012 in February.
"This probably reflects the fact that the heat has come out of housing more quickly than planned," JP Morgan economist Ben Jarman said.
Tightening labour markets and wage hikes in most Western economies have started the road to normalisation of interest rate policy overseas, but high house prices and increasing levels of household debt combined with torpid wage growth have prevented RBA board members from charting a similar course here.