RBA TAKES ON HOLDGet In Touch!
RBA TAKES ON HOLD
However, the bank has revealed that it “took careful note of recent developments in the housing market, noting the effects of supervisory measures to strengthen lending standards, the recent easing in housing credit growth and the abatement of strong price pressures” when deciding to lower the cash rate to a fresh record low. That comment strongly implies that if the 25-basis-point rate cut, which has been passed on in full by most of Australia’s major banks, re-stokes demand and prices in the housing market then it will be the last delivered by the RBA in this cycle. The other major domestic uncertainty surrounding the outlook for interest rates is wage growth. The Reserve Bank has observed that the most comprehensive measure of take home pay – average earnings per hour – actually declined in the December quarter and was little changed over 2015. “This growth is comparable to the period of weakness in the early to mid-1990s at a time of considerably higher unemployment,” the bank noted. On the one hand, this phenomenon could be temporary, as the process of workers leaving higher-paid resources jobs and returning to lower paid employment elsewhere in the economy winds up over the next year or two. On the other, the bank appears to have cut rates because it is concerned the low wages growth could lead to reduced spending causing economic growth to miss its forecasts. “The forecasts assume that households will respond to near-term weakness in income growth by reducing their rate of saving to sustain their consumption growth,” the RBA explained. “If, however, a longer period of low wage growth leads households to lower their expectations for income growth over the longer term, household consumption may not increase to the extent forecast.”