REFILE-Australia’s central bank sees more “positives” in domestic, world economy

Reuters




(Corrects date of last RBA policy meeting to July 4 in para 12)
    SYDNEY, July 18 (Reuters) - Australia's central bank has
turned more upbeat on the economic outlook, citing an improving
labour market, stronger public investment and a pick up in
household consumption.
    Yet minutes of the Reserve Bank of Australia's (RBA) July
meeting showed policy makers remained watchful on risks to jobs
and housing, suggesting they were in no hurry to lift interest
rates anytime soon.
    The mood was clearly brighter, with the word "positive"
appearing repeatedly in the five-page statement.
    One new development was an upturn in fiscal spending which
was now expected to be stronger in 2017/18 than previously
expected, mainly thanks to public infrastructure.
    "Members noted that infrastructure investment was expected
to have significant positive spillovers to other parts of the
economy," the minutes showed.
    A run of strong jobs reports were also encouraging.
    "Members noted that the strength of recent labour market
data had removed some of the downside risk in the bank's
forecast of wage growth."
     Board members also noted an improvement in the world
economy as a "welcome development".
     While some other central banks in Canada, Europe and United
States had either begun tightening or were considering scaling
back their massive stimulus campaigns, the RBA has as yet shown
no inclination to follow the pack.
    It left rates at 1.5 percent in July for a 10th straight
meeting, and financial markets imply only a slim chance of a
hike by year end.
    Analysts suspect a recent sharp rise in the local dollar
will add to the case against a hike. The RBA repeated its
standard line that "an appreciating exchange rate" would hurt
the economy's transition away from a decade long mining
investment boom.
     Since the RBA's last meeting on July 4, the Aussie <AUD=D4>
has rocketed to a two-year high, orbiting at 78 U.S. cents - a
level that will be highly unwelcome to policy makers in the face
of weak inflation.
     The Aussie got a boost on a worn-out greenback after weak
U.S. economic data cast doubts over whether the Federal Reserve
would raise interest rates again in 2017.
    HOUSEHOLD DEBT
    Despite a resurgence in global growth and greater optimism
over domestic economic activity, the RBA was not convinced about
putting rates up.
    Australia's household sector is under severe strain with
debt-to-income at a record high 190 percent while wages are
crawling at the slowest pace ever. [nL3N1JA1JW]
     A hike in official rates would push up mortgage costs for
already indebted Australian families.
     Yet it fears that easing further might only stoke further
borrowing by investors to speculate in the housing market.
     House prices in Sydney and Melbourne - two of the country's
hottest markets - have broadly doubled since 2009. There are
tentative signs of a cooling off since April following tighter
regulations on lending to property investors.
     The RBA noted it would take time for the full effects of
regulatory measures to show.
      Members "assessed that current economic conditions in
Australia and the outlook for growth and inflation, meant that
developments in the labour and housing markets continued to
warrant careful monitoring."

 (Reporting by Swati Pandey)
 (([email protected]; +61 2 9321 8166; Reuters
Messaging: [email protected];
twitter.com/swatisays))

Keywords: AUSTRALIA RBA/MINUTES (CORRECTED)





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