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Australian interest rates may stay low for longer

June 14, 2018 00:00:00

The head of Australia's central bank has reiterated that any increase in the country's official cash rates was still "some time away" as wage growth and consumer prices remain tepid.

The Reserve Bank of Australia (RBA) has held rates at a record low 1.50 per cent since last easing in August 2016.

The latest decision of the RBA has made the current stretch of no change in policy the longest on record, reports Reuters.

"A sustained pick-up in inflation to around the midpoint of the target range is likely to require faster wages growth than we are currently experiencing," the RBA said.

"This increase is likely to be only gradual," said RBA Governor Philip Lowe.

"Given this, there is not a strong case for a near-term adjustment in monetary policy," Lowe said on Wednesday.

Lowe said RBA was paying close attention to household finances and consumption growth which has remained soft even as the country entered its 27th year of recession-free growth last quarter.

Australia's A$1.8 trillion economy ($1.4 trillion) expanded at an annual 3.1 per cent in the March quarter, the fastest pace in almost two years.

Still, household consumption growth has remained soft as debt-laden consumers battling tiny wage increases of around two per cent hold back on everyday purchases.

The household debt-to-income ratio is 190 per cent in Australia.

The ratio is the highest on record as all-time low interest rates have fuelled a debt binge in the property market.

Lowe was still confident of a pick-up in wage increases over time as more jobs are added and with some companies citing constraints in finding suitable workers.

"If this continues to be the case, it is likely that the next move in interest rates will be up, not down," Lowe said.

"It is, however, important to remember that the environment is also likely to be one in which people's incomes are growing more quickly than they are now," he said.

"This will help," he added.

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