Australia holds rates as CPI speeds up

by NZ Adviser03 May 2017
(Bloomberg) -- Australia kept interest rates unchanged as faster inflation and signals of looming fiscal stimulus combine with an upswing in global growth.

“Above-trend growth is expected in a number of advanced economies,” Reserve Bank of Australia Governor Philip Lowe said in a statement announcing the decision Tuesday. “The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia’s national income.”

The central bank also left the cash rate at a record-low 1.5 percent -- as expected by all 28 economists surveyed by Bloomberg -- to allow regulatory rules targeting riskier property loans to take effect amid hot housing markets in Sydney and Melbourne.

The lending crackdown is designed to discourage households -- already among the world’s most indebted -- from gearing up further after east-coast property prices doubled since 2009. The RBA fears that, in a weak wage growth and with inflation still subdued, over-leveraged borrowers could slash spending in an economy where consumption accounts for more than half of output.

“Growth in housing debt has outpaced the slow growth in household incomes,” Lowe said. “The recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness.”

The Australian dollar edged higher, buying 75.42 U.S. cents as 3:18 p.m. in Sydney compared with 75.37 cents prior to the decision.

“The bank’s forecasts for the Australian economy are little changed. Growth is expected to increase gradually over the next couple of years to a little above 3 percent,” Lowe said in a preview of the central bank’s quarterly update due Friday. “Growth in consumption is expected to remain moderate and broadly in line with incomes. Non-mining investment remains low as a share of GDP and a stronger pick-up would be welcome.”

Australia’s government has given itself leeway to finance projects like road and rail by redefining debt in its May 9 budget. Treasurer Scott Morrison is seeking to distinguish between good debt -- used for productivity enhancing or income-generating infrastructure -- and bad debt used to fund things like welfare and health. That would ease the constant pressure on the RBA to support the economy since late 2011.

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