Will the RBA raise interest rates in 2018?
During the week, data on Australian wage growth and employment was released. Indeed, Australia’s central bank, the Reserve Bank of Australia (RBA) is awaiting to see signs of a tightening labour market to drive wages higher and spur inflation before they consider increasing interest rates. With the latest data release, the risk of an RBA rate hike appears low, in our view. We would not be surprised if the RBA does not hike rates in 2018.
Key data points on employment
The key data points released during the week by the Australian Bureau of Statistics:
- Unemployment rate was 5.6% (versus expectations at 5.5%
- Full-time jobs increased 32,700
- Part-time jobs decreased 10,000
- Participation rate was 65.6% versus estimates at 65.5%
- Wage growth was 2.1% year on year (in line with market expectation)
Will the RBA raise interest rates?
It appears that whilst fading excess capacity in the labour market drove Australia’s wage growth higher in 2H 2017, such progress appeared to have stalled in 1Q. These data points mean that the risk of a rate hike by the RBA is diminishing. The RBA expects wage growth to remain “low” for “a while yet.” The RBA also expects gradual progress toward the 2-3% inflation target, rising a “bit above” 2% this year. Indeed, we note that wage growth remains far from the 3.25% assumption in the Federal government’s budget plan for fiscal 2020.
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