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RBA Signals Easing As Wage Growth Unlikely To Pick Up

reservebankofaustralia nov06 08nov19 lt

Australia's central bank signaled further easing as wage growth is not expected to pick up and inflation set to remain below the target band.

In its quarterly statement on monetary policy, released on Friday, the Reserve Bank of Australia said wage growth is no longer expected to pick up but the labor market and inflation forecasts were little changed from August.

At the October meeting, the board said it was mindful that rates were already very low and that each further cut brings closer the point at which other policy options might come into play, RBA said in the statement today.

This represents a more open approach to the discussion around unconventional policies, Bill Evans, an economist at Westpac said.

There is no firm commitment to move in that direction but the wording indicates that such a transition to other options may be considered to be a normal approach to policy, Evans added.

The central bank had reduced the rate by 25 basis points in October after lowering it in June and July.

A larger-than-expected contraction in dwelling investment could delay the gradual improvement in GDP growth.

The economy is forecast to grow 2.5 percent in the financial year ending June 2020 and 3 percent in the year ending June 2021. The outlook for 2020 was lowered from 2.75 percent, while the 2021 projection was retained.

The bank said the growth will be underpinned by low interest rates, tax cuts, ongoing infrastructure spending, the upswing in housing prices in some markets and a brighter outlook for the resource sector.

Inflation is expected to increase a little over the forecast period as labor market spare capacity declines a little and as growth picks up to above potential, the bank said. Inflation is seen at 2 percent in the year ending June 2020 and 1.75 percent in June 2021.

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