Reserve Bank of Australia

Reserve Bank of Australia holds rates at record low, signals steady view

Household debt a major concern for RBA: Economist

The Reserve Bank of Australia held rates at a record low 1.50 percent as expected on Tuesday and signaled economic conditions were in line with its inflation and growth targets.

In an assessment of the global economy, central bank governor Philip Lowe said in a statement that conditions have improved over last few months, with business and consumer confidence picking up. Advanced economies are also expected to see above-trend growth.

In addition, higher commodity prices have boosted Australia's national income, he added.

The governor also expect interest rates to increase further in the United States and does not see additional monetary easing in other major economies.

Despite that, uncertainties remain and China is one of the risks, said Lowe.

"In China, growth is being supported by higher spending on infrastructure and property construction. This composition of growth and the rapid increase in borrowing mean that the medium-term risks to Chinese growth remain," he said in the statement.

Domestically, underlying inflation will likely remain low "for some time" given the subdued growth in labor costs, the governor said. He also noted the uneven conditions in the housing market across the country and the build up in housing debt, which analysts said poses a big risk for the Australian economy.

"Taking account of the available information the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time," Lowe said.

Speaking on CNBC's "Street Signs" after the RBA statement was released, Commonwealth Bank's senior economist Gareth Aird said the central bank will likely keep rates unchanged for the rest of the year.

"I just don't think at the moment given what's happening with house prices and household debt, the reserve bank can take rates lower. So I think rates will stay on hold from here and it won't be until inflation gets up to that target band that i think rate raises will come on to the table," he said.

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