RBA Keeps Focus on Jobs and Housing Even as Markets Improve

  • Central bank reiterates concerns in minutes of June meeting
  • Measures to cool mortgage lending yet to have ‘full effect’

Australia’s central bank kept its focus on employment and housing markets even as signs emerge of improvements in both.

While property had been “rising briskly” in Sydney and Melbourne, there were also some signs that price pressures were beginning to ease, the Reserve Bank of Australia said Tuesday in minutes of this month’s policy meeting when interest rates were kept at 1.5 percent. Similarly, while employment gains had strengthened in recent months, growth in hours worked had declined, it said.

Policy makers met before May employment data showed a third straight monthly gain and the jobless rate fell to a four-year low of 5.5 percent. The RBA also reiterated growth in housing debt had outpaced growth in household incomes and noted measures by the banking regulator designed to cool lending “were yet to have their full effect.”

“The board continued to judge that developments in the labor and housing markets warranted careful monitoring,” the bank said.

The Australian dollar was little changed after the report, buying 75.87 U.S. cents at 12:34 p.m. in Sydney.

RBA Governor Philip Lowe has stressed the importance of ensuring financial stability as a record-low cash rate drives up borrowing and asset prices. He’s kept borrowing costs unchanged since taking the helm in September, prepared to tolerate weaker inflation in order to avoid further pumping up housing.

“Wage growth had remained low and this was likely to remain the case for some time yet,” the RBA said. “Low growth in incomes, along with high levels of household debt, appeared to have been restraining growth in household consumption.”

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Australia is suffering from a similar malaise to other developed nations as workers worried about job security are scaling back wage demands, restraining inflation and leaving households with little spare cash. Indeed, Lowe urged them in a speech Monday to seek fatter pay packets.

The falling jobless rate may begin to embolden workers, with the minutes saying forward-looking indicators pointed to further jobs growth ahead and “a gradual erosion” of spare capacity in the labor market.

“The RBA is getting more concerned about the outlook for consumption and, just as it didn’t get too depressed by the rise in the unemployment rate to 5.9 percent earlier this year, it won’t get too excited by the fall to 5.5 percent,” said Paul Dales, chief Australia and New Zealand economist at Capital Economics Ltd.

Despite a weak first-quarter GDP result, the central bank maintained that economic growth will gradually accelerate over the next couple of years to a little above 3 percent per annum.

The central bank’s liaison also identified a range of commercial property projects that are under consideration for the year ahead, the minutes said.

The RBA also said the government’s May budget would have little effect on its near-term outlook for the economy as there was little change in the deficit figures, while proposed infrastructure spending is likely to occur after 2019.

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