Australia holds interest rates as economy loses steam

SYDNEY: Australia’s central bank kept interest rates on hold at a record low on Tuesday, as it flagged an uncertain outlook for consumer spending in the midst of a weakening housing market and soft income growth.

The cash rate has been at 1.50 per cent since August 2016 as the Reserve Bank of Australia waits for non-mining industries to fill the gap left by the end of an unprecedented commodities boom.

While business investment has recently picked up and the jobless rate has fallen to five per cent, the central bank has been reluctant to hike rates as the once-booming housing market weakens.

“The main domestic uncertainty continues to be the strength of household consumption in the context of weak growth in household income and falling housing prices in some cities,” governor Philip Lowe said in a statement.

The central bank said ahead of the release of fourth-quarter growth figures on Wednesday that the economy looked to have slowed over the second half of 2018.

It had already cut its growth outlook for this year to 3.0 per cent from its previous forecast of 3.5 per cent.

The economy grew just 0.3 per cent in the third-quarter, with economists forecasting a similar level for the next three months.

With the increase in exports of iron ore, coal and LNG levelling off, the economy is now more dependent on consumer spending to boost growth.

“That exports boost is pretty much gone and it means you need more growth domestically and the consumer is the biggest part of the domestic economy,” JP Morgan economist Tom Kennedy said.

“It’s pretty hard to see the consumer doing overly well in the next little while because you’ve got low income growth, high debt, low savings and housing going backwards.” The RBA talked up the strength of the labour market, and said it expected the unemployment rate to decline to 4.75 per cent in the next few years and support a “gradual” lift in wages.

Analysts have said any increase in the unemployment rate is likely to raise the prospects of a rate cut. More analysts are now pricing in one or two rate cuts this year or by the end of 2019. — AFP