Australia's Central Bank Renews Alert on Mounting Household DebtBy
Central bank releases minutes of August rate meeting
Main change is emphasis as debt replaces jobs in key concerns
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Australia’s central bank renewed its focus on mounting household debt, even as the outlook for the nation’s economy improved, according to the minutes of this month’s policy decision where interest rates were left unchanged.
State of Play
The main change is one of emphasis after the Reserve Bank of Australia removed the labor market and added household balance sheets -- where debt is currently at a record 190 percent of income -- to its key areas of concern alongside the residential property market. But the minutes convey rising confidence that Australia’s economy will strengthen and is poised to benefit from the tailwind of a much improved global backdrop.
Yet areas of substantial uncertainty remain: how China manages the trade-off between growth and the build-up of leverage; the fact the forecasts for the domestic economy are based on no change in the exchange rate in the period through 2019; and whether better employment would lead to higher household income and increased consumption, or whether ongoing weak wage growth and high household debt would cut into consumption.
The RBA has kept rates on hold at 1.5 percent for the past year and markets are betting it will do so for a further 12 months, an assumption that Governor Philip Lowe last week described as reasonable. Policy makers would like to see the local dollar weaken, labor market tighten and wages and inflation accelerate, though they acknowledge the latter two will be gradual. The bank “has been prepared to be patient” on monetary policy, Lowe said in his statement to a parliamentary panel in Melbourne Friday, the latest in a slew of communications over the past month.