MNI POLICY: RBA Eyes Consumption Growth; Ready To Cut: Minutes

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia stands ready to provide

further monetary stimulus and is concerned at slow wages growth and the lag in

lower interest rates flowing through to consumer spending, according to the

minutes of the December 3 meeting.

     "Members noted that monetary policy had long and variable lags and that

indebted consumers may take some time before increasing their spending in

response to a decline in their mortgage interest payments," the minutes said.

     While satisfied that low official interest rates had been transmitted into

lower bond yields, a lower Australian dollar, lower mortgage rates and higher

asset prices, the minutes show that the "persistently low growth" in household

incomes continues to be a source of concern.

     At the Dec 3 meet, the left the cash rate unchanged at a record low 0.75%,

having already made 3 25 bps cuts since June.

     "The current rates of wages growth was not consistent with inflation being

sustainably within the target range, nor was it consistent with consumption

growth returning to trend," the minutes said.

     "Weak growth in household income continued to present a downside risk to

consumer spending, and a low appetite for risk could be constraining businesses

willingness to invest," the release continued.

     --WAGE GROWTH

     The wage price index increased by 0.5% in the September quarter, to be 2.2%

higher in year-end terms.

     Unemployment is at 5.3% after beginning the year at a decade low 4.9%,

largely driven by a record high participation rate. The RBA is committed to

"full employment", which it has said is at around 4.5%.

     Despite the concern on wages and consumption, the minutes repeated the RBA

view that the economy has reached a "gentle turning point".

     Growth was being driven by lower interest rates, government tax cuts,

infrastructure spending and a recovery in the property market.

     --2020 VISION

     The minutes show the Bank discussed its "ability to provide further

stimulus to the economy, if required" and is prepared to ease monetary policy

further.

     In a speech last month, RBA Governor Philip Lowe said the Bank would

consider "unconventional" policy measures if rates were to go down to 0.25%,

noting the most probable measure would be the purchasing of Government bonds,

although adding that such a proposition was a long way off.

     The minutes say the RBA will reassess the economic outlook in February

2020, when it will prepare updated forecasts.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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