Australia’s central bank is showing increased confidence the economy will strengthen further next year, potentially laying the ground for the first policy tightening since 2010, the minutes of its December meeting show.
The minutes cover discussions held prior to the release of third-quarter GDP, strong November employment data and the Federal Reserve raising interest rates, so are quite dated. Still, the themes that have kept the Reserve Bank of Australia on the sidelines with a record-low cash rate of 1.5 percent remain: rising business confidence underpinning increased hiring and investment on one hand; and heavily indebted households struggling with weak wages weighing on consumption on the other.
Australia has held rates unchanged for 16 months while regulators have implemented macro-prudential measures to slow borrowing and bring the housing sector in to a soft landing. While the RBA is confident a tightening labor market will eventually boost wages and inflation, it also acknowledged that this hasn’t occurred in Japan, the U.S. and Germany where unemployment is far lower than it is Down Under.