SYDNEY (BLOOMBERG) - Australia's central bank is holding fire on interest rates as it awaits a resolution to the divergence between strong hiring and decelerating economic growth.
The Reserve Bank said the labour market is "particularly important" to the outlook and reiterated there's considerable uncertainty over consumption, minutes of its March 5 policy meeting released on Tuesday (March 19) showed. It said dwelling investment was expected to subtract from growth and the decline "could be sharper" than currently expected.
"Members agreed that there was not a strong case for a near-term adjustment in monetary policy," it said. "Rather, they assessed that it would be appropriate to hold the cash rate steady while new information became available that could help resolve the current tensions in the domestic economic data."
The RBA has shifted to a neutral policy stance as tumbling property prices weigh on household spending and damp growth. It's trying to reconcile that slowdown with strong job gains and falling unemployment, as well as liaison with firms that signal a healthy employment outlook. The RBA noted this discrepancy is visible in several other developed economies.
The Australian dollar traded at 70.96 US cents at 11.32am in Sydney, little changed from before the minutes were released.
The board met a day before the release of GDP data showing the economy decelerated in the second half of the year to an annualised 1 per cent from almost 4 per cent in the first half. The RBA has kept rates on hold for 2-1/2 years as it aims to boost employment, lift wages and reignite inflation.
The board noted in the minutes that "while the labour market had continued to strengthen, less progress had been made on inflation."
The minutes reiterated that leading indicators suggested jobs growth was likely to remain "above average," while noting some measures "had turned down a little recently."
While the RBA said a trough in mining investment is near and spending is set to resume, Western Australia, the epicenter of the commodities boom, is struggling. State unemployment has climbed to around 6.5 per cent there vs 5 per cent nationally, and wage-growth is 1.6 per cent vs 2.3 per cent for the country.
A separate released showed Australian house prices fell 2.4 per cent in the final three months of last year from the prior quarter and dropped 5.1 per cent from a year earlier. Both were worse than expected.
Policy makers noted the global economy had cooled in the second half of 2018 and this had continued into 2019. However, they were unable to read too much further into the picture as the US government shutdown and Chinese New Year holiday had impacted the timing of data releases.
On the US-China trade war, the RBA said there had been "spillover effects" on some other economies: a decline in Chinese imports to meet domestic demand and facilitate export production in east Asia; an easing in intra-regional export growth; and survey measures of new exports orders in east Asia had "declined sharply" to be below average early in 2019.