Wed, Dec 05, 2018 - Page 10 News List

Australia’s hiring surge emboldens central bank


Australia’s booming jobs market emboldened the central bank to scrap a long-held reference to weak wages, even as it signaled concern about a housing slump in an unchanged interest-rate decision.

Reserve Bank of Australia Governor Philip Lowe yesterday removed a line that “wages growth remains low” from his statement, instead saying that a pickup in pay gains was a “welcome development.”

Lowe and his board left the cash rate at 1.5 percent, as they have since August 2016.

The governor was decidedly upbeat on jobs after unemployment fell to 5 percent, the lowest in more than six years, with data forecast to show that the economy last quarter expanded an annual 3.3 percent.

“With the economy expected to continue to grow above trend, a further reduction in the unemployment rate is likely,” he said. “The improvement in the economy should see some further lift in wages growth over time.”

Lowe was more cautious on Sydney and Melbourne housing, saying that credit conditions for some borrowers “are tighter than they have been for some time, with some lenders having a reduced appetite to lend.”

Demand for mortgages by investors “has slowed noticeably,” he added.

The deteriorating housing market introduces a new variable to the bank’s policy matrix as it threatens household sentiment and spending.

Lowe has been using record-low rates to drive faster economic growth and tighten the labor market to force employers to offer workers higher wages; that in turn would boost incomes and inflation and lay the ground for the first rate rise since 2010.

Australian house prices last month recorded their biggest monthly drop since the global financial crisis, reflecting lending curbs and buyers staying on the sidelines.

Sydney is down 9.5 percent from the peak in July last year.

On the impact of the US-China trade tensions, Lowe said: “The global economic expansion is continuing and unemployment rates in most advanced economies are low. There are, however, some signs of a slowdown in global trade, partly stemming from ongoing trade tensions.”

Lowe kept his commentary on the currency pretty much unchanged. The Australian dolalr has recovered some ground in the past three weeks, but is still down about 9 percent from its late January peak

As for the cash rate outlook, traders are pricing in less than a 50 percent chance of a hike by the end of next year. Among economists, only 10 of 25 surveyed by Bloomberg expect a tightening next year.

The bank is next to convene in February.

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