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Australia's hiring surge emboldens central bank on wages growth
[SYDNEY] 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.
Governor Philip Lowe removed a line that "wages growth remains low" from his statement on Tuesday, instead saying that the recent pickup in pay gains was a "welcome development". The Reserve Bank chief and his board left the cash rate at 1.5 per cent, as they have since August 2016.
The governor was decidedly upbeat on jobs after unemployment fell to 5 per cent, the lowest level in more than six years, with data on Wednesday forecast to show the economy expanded an annual 3.3 per cent last quarter.
"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."
Mr Lowe was more cautious on Sydney and Melbourne housing, observing that credit conditions for some borrowers "are tighter than they have been for some time, with some lenders having a reduced appetite to lend". He said demand for mortgages by investors "has slowed noticeably".
The deteriorating housing market introduces a new variable to the RBA's (Reserve Bank of Australia) policy matrix as it threatens household sentiment and spending. Mr Lowe has been using record-low rates to drive faster economic growth and tighten the labour market to force employers to offer workers higher wages; that in turn will boost incomes and inflation and lay the ground for the first rate rise since 2010.
Australian house prices recorded their biggest monthly drop since the global financial crisis in November, reflecting lending curbs and buyers staying on the sidelines. Sydney is now down 9.5 per cent from the July 2017 peak.
On the impact of the US-China trade tensions, Mr 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."
The RBA chief kept his commentary on the currency pretty much unchanged. The Aussie has recovered some ground in the past three weeks, but is still down around 9 per cent from its late January peak
As to the outlook for the cash rate, traders are pricing in less than a 50 per cent 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 RBA will next convene in February.