Australia's central bank governor defends low policy rates, says won't move in lock step

People walk past the Reserve Bank of Australia building in the central business district of Sydney on July 4, 2017.
Saeed Khan | AFP | Getty Images
People walk past the Reserve Bank of Australia building in the central business district of Sydney on July 4, 2017.

The Reserve Bank of Australia (RBA) welcomes a recent pick up in the labor market, although subdued wages and high household debt means policy rates will stay lower for longer, Governor Philip Lowe said on Wednesday.

Australia's labour market strengthened for a fourth month in June led by a remarkable comeback in full-time jobs while the unemployment rate steadied at 5.6 percent.

Other indicators of the economy's health have also been generally positive, with a measure of business conditions jumping in the June quarter to its highest level since early 2008.

Wage growth at 1.9 percent, however, is crawling at the slowest pace ever and the underemployment rate, which measures people wanting to work more hours, is near record highs.

That is putting downward pressure on inflation which remains below the RBA's 2-3 percent target band. Data out on Wednesday showed consumer prices were surprisingly soft last quarter with underlying inflation at 1.8 percent.

"We have not sought to stimulate a rapid lift in inflation," Lowe said at a lunch in Sydney.

"The fact that the labor market has been generating sufficient jobs to keep the unemployment rate broadly steady has allowed us to be patient."

The RBA has held policy rates at an all-time low 1.50 percent after it last eased in August 2016, as it juggles tepid inflation and household debt at a record 190 percent of disposable income.

"Over recent times you would have noticed that we have been paying close attention to the risks in household balance sheets.

Household debt is high and rising faster than the unusually slow growth in incomes," Lowe added.

"We are intent on delivering Australians an average rate of inflation over time of between 2 and 3 per cent. We are seeking to do this in a way that supports sustainable growth in the economy and that best serves the public interest."

Lowe echoed comments made by his deputy Guy Debelle who this week quashed talk of domestic interest rate hikes which had gathered momentum after the Bank of Canada increased its policy rate to 0.75 percent last week.

"Just as we did not move in lock step with other central banks when the monetary stimulus was being delivered, we don't need to move in lock step as some of this stimulus is removed," Lowe said.