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RBA warns over housing risks, debt as global reflation emerges
[SYDNEY] Australia's central bank highlighted threats in the property market and an acceleration of domestic household debt even as it lent credence to the global reflation story.
"Data continued to suggest that there had been a build-up of risks associated with the housing market," it said in minutes released Tuesday of this month's meeting where it held interest rates at a record-low 1.5 percent. "Growth in household debt had been faster than that in household income."
The Reserve Bank of Australia's warning comes as the economic divide in Australia sharpens with house prices more than doubling in Sydney since 2009 and Melbourne's similarly surging as investors tap cheap money. Meanwhile in the west, the heart of an unwinding mining-investment boom, property prices are falling and businesses are going bust as demand is weak.
The Australian dollar was little changed after the report, buying 77.31 US cents at 11.33 am in Sydney compared with 77.29 cents before its release.
The RBA has been willing to tolerate inflation below its target to avoid adding rate fuel to the east coast property markets, aided by economic growth forecast to accelerate to 3 per cent this year and unemployment holding below 6 per cent.
But in the intervening period between the March 7 meeting and today's release, the jobless rate jumped to 5.9 per cent from 5.7 per cent, while policy makers were already concerned about the real strength of the labor market.
"It was clear that spare capacity remained and there continued to be significant differences in labor market outcomes across the country," the RBA said, again referencing the economic divide. "Domestic wage pressures remained subdued and household income growth had been low, which, if it were to persist, would have implications for consumption growth and the risks posed by the level of household debt." That debt currently stands at a record 187 per cent of income.
Yet the RBA also noted the unusual correlation of growth and inflation worldwide as the US and Chinese economies remain strong and even Japan and Europe grow faster than their traditional speed limits.
"Growth in global industrial production and merchandise trade had picked up further and survey measures of business conditions had remained at high levels," it said. "Headline inflation in the major advanced economies had increased noticeably in recent months, largely as a result of higher oil prices, to be close to most central banks' targets. However, core inflation had generally remained low." The central bank also made a thinly veiled reference to the Trump administration.
"Members noted that the volume of trade destined for the United States had fallen significantly as a share of total global trade since the late 1990s," the RBA said. "Nevertheless, a move to more protectionist policies would still be damaging for the medium-term outlook for both the U.S. and global economies." In sum then, the RBA left rates unchanged as it has since Governor Philip Lowe took the chair in September, saying policy "would be consistent with sustainable growth in the economy and achieving the inflation target over time."