MNI BRIEF: RBA's Lowe Says Rate Pricing Reflects Wages, Debt
Reserve Bank of Australia Governor Philip Lowe said wage outcomes and Australia's higher exposure to variable rate debt were two key drivers of the different rate paths priced in for Australia and the U.S.
"For some months now the financial markets have priced in quite different profiles for our interest rates than the Fed. Financial markets have lived for some time with an expected difference of one percentage point between rates here and the United States, and the exchange rate has been broadly steady in trade weighted terms for months now," Lowe said in a Q&A after a speech on Wednesday. (See MNI: RBA's Lowe Says Closer To Pause, Rates Are Restrictive)
"There are important differences between the U.S. and Australia. The wage outcomes, that's a really important difference."
He said Australia had higher rates of participation and immigration was starting to rise again, which would expand the pool of available workers and deliver "okay" wage outcomes. He also said Australians had a higher exposure to variable rate debt than borrowers in the U.S., meaning rate rises would have more of an impact.