RBA facing many issues - ING

For the RBA, the issues are similar to those of any other developed market central bank as the economy is running not far below trend and seems to be picking up steam; the labour market is tight, with the unemployment rate at only 5.6%, but inflation and wages are conspicuous by their absence, explains the research team at ING.

Key Quotes

“Then again, 2Q17 wages growth did spike a little higher and now exceed 2.0% YoY (including bonuses, 1.9%YoY without), and inflation on various headline and core measures is running only a little below the central point of the 2-3% target range.”

“Hiking rates now would only encourage the AUD to rise further. The AUD has risen by around 10% since the end of 2016, despite the Fed’s tightening, as it has benefited from commodity price increases amidst the synchronous global upturn.”

“The RBA is having to tread a difficult balancing act between financial stability, and sustainable growth”

“Rates are likely to be on hold for the time being unless one or other of the constraints that currently bind it (AUD strength, low inflation, wages) begin to slacken.”

“With household borrowing high, but the likely emergence of any wages growth in the hands of Australian businesses, it's not easy for the RBA. This means it is likely to be on hold for the time being unless one or other of the constraints that currently bind it (AUD strength, low inflation, wages) begin to slacken.”