Australia’s economy is on a slowly-improving trajectory, but that doesn’t make a case for raising interest rates in the near term says Guy Debelle, deputy governor of the Reserve Bank.
The RBA’s central forecast is for the economy to grow a little faster in 2018 and 2019 than in 2017. That should see the unemployment rate resume its gradual decline. It should also see wages grow and inflation gradually pick up, Debelle says.
“In time, should that central forecast come to pass, higher interest rates are likely to be appropriate. But the RBA board does not see a strong case for a near-term adjustment in the cash rate,” he says.
The RBA has held its official cash rate at a record low 1.5% since mid-2016, and financial markets expect it will remain sidelined for some time to come.
Central to the RBA’s narrative is concern around weak wage growth at a time of soaring household debt. But Debelle says that when interest rates rise, it will be at a time when wages are also rising to allow consumers to cope with the added costs of mortgage repayments.