Australia c.bank still trying to unravel policy puzzle - dep gov
(Adds more details from speech, context)
By Swati Pandey
ADELAIDE, April 10 (Reuters) - Australia's central bank is
keeping a close eye on how the divergence between a seemingly
slowing economy and a strong labour market resolves itself to
help determine where policy rates are headed, a senior official
said on Wednesday.
Economic growth in Australia slowed sharply in the second
half of 2018 and the new year also got off to a shaky start. At
the same time, the jobs market has continued to strengthen with
the unemployment rate at an eight-year trough of 4.9 percent.
"A critical question is which of these is providing the best
signal of the global growth impulse? Is it GDP or the labour
market? How can we reconcile the difference?" Reserve Bank of
Australia (RBA) Deputy Governor Guy Debelle said in a speech in
The RBA has left rates at a record low 1.50 percent since
August 2016 and recently shifted away from its long-held
tightening bias to signal rates could move in either direction,
depending on data.
Debelle noted that trade tensions were among several factors
that have put a brake on global economic momentum. The United
States and China have slapped tariffs on each other's goods and
have threatened to levy more duties in an escalating dispute
that has rattle financial markets and hit business investment.
The two nations are currently engaged in talks to resolve
The uncertainty around a trade deal and its impact have
already played out in many economies, including Germany with
manufacturing activity slowing sharply.
The trade war has not hit Australian shores yet, but overall
economic growth still slowed sharply last year largely because
household consumption weakened.
"In my view, the main explanation as to why consumption
growth has slowed is the low growth in household income, and an
increasing expectation that it is likely to remain low," Debelle
Wage growth in Australia is at a tepid 2.3 percent, a shade
higher than inflation of just under 2 percent.
But while consumption has been unexpectedly weak, other
parts of the A$1.9 trillion economy have evolved broadly as
expected, Debelle said.
Business investment, outside the mining sector, has expanded
at a "good rate." In addition, exporters are experiencing a boom
while the services sector, including tourism and education, is
also showing strength.
One weak spot is the housing market though residential
construction is at a historically high level now. But as house
prices fall further dwelling activity is also expected to cool.
"We continue to pay close attention to the housing market
developments," Debelle said.
"The critical factor in the future evolution of both arrears
and negative equity is whether the household with the mortgage
has an income and a job. The labour market is key here."
(Reporting by Swati Pandey and Wayne Cole;
Editing by Shri Navaratnam)
First Published: 2019-04-10 05:45:17
Updated 2019-04-10 06:06:38
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