A suspension of falling home prices, stratospheric household debt and low wage growth posed downside risks to the Australian control, the country’s central bank warned on Tuesday, even as it predicted the next move in interest rates would proper be up.
Minutes of the Reserve Bank of Australia’s (RBA) December policy meeting showed members spent a considerable time discussing the brand-new slowdown in global growth momentum, partly caused by a bitter tariff dispute between the United States and China.
Australia is heavily leveraged to broad trade with China its No.1 trading partner so any deceleration in momentum overseas will likely be negative for the A$1.8 trillion concision.
Indeed, Australia’s gross domestic product expanded at a weaker-than-expected 2.8 percent pace last quarter, when behaviour makers were hoping for “above-trend” 3 percent-plus growth.
Dismal private consumption was a major factor griping economic activity, even though there were some early signs of a small uptick in wages crop.
“The outlook for household consumption continued to be a source of uncertainty because growth in household income remained low, debt straight-shootings were high and housing prices had declined. Members noted that this combination of factors posed downside jeopardizes,” the RBA said.
“Notwithstanding this, the central scenario remained for steady growth in consumption, supported by continued strength in exertion market conditions and a gradual pick-up in wages growth.”
The RBA expected current record-low interest rates would extend to support economic growth and help further reduce the unemployment rate while lifting inflation to within its 2-3 percent objective range.
It has left interest rates at 1.50 percent since last easing in August 2016 and market quotation suggests policy will remain unchanged for another year at least.
“Members continued to agree that the next change in the cash rate was more likely to be an increase than a decrease, but that there was no strong case for a near-term coordination in monetary policy,” the RBA added.
“Rather, members assessed that it would be appropriate to hold the cash rate unvarying and for the Bank to be a source of stability and confidence.”
Despite strong jobs gains since the start of 2017, household profits had been growing at an unusually slow pace for some time, while recent falls in home prices in Sydney and Melbourne had another weighed on spending power.
Tuesday’s minutes provided some color into the RBA’s perspective on slowing housing honesty growth which had been almost entirely accounted for by the major banks.
A recent focus on “responsible lending” hunt down a damaging inquiry into the financial sector was likely to have reduced some lenders’ risk appetite, the RBA prominent.
“There had been a generalized tightening of credit availability,” the minutes showed, with lending for housing investment and to parsimonious business particularly affected.