Australia keeps rates on hold ahead of national budget

The Reserve Bank of Australia has not adjusted rates since August 2016, following a series of cuts from November 2011 that took it to 1.50 percent in a bid to boost non-mining sectors of the economy.

Its decision to stay on hold comes just before the conservative government of Prime Minister Malcolm Turnbull is due to release its next budget on May 8.

The spending plan, which will take the country up to national elections early next year, is tipped to be generous with personal income tax cuts and infrastructure investment, and keep the nation on track to a return to a budget surplus in the next few years.

In its statement explaining its decision to extend the record breaking run on rates, the board noted that employment was growing strongly but wage growth remained low.

“The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a further gradual reduction in the unemployment rate expected,” it said.

“Notwithstanding the improving labour market, wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time.”

Policy makers are banking on continued low interest rates and rising investment to drive hiring and gradually encourage wage growth.

Inflation also remains below target, and the Australian dollar too high, which could hamper a pick-up in economic activity, the bank said.

But business conditions are positive and non-mining investment growing, with higher levels of public infrastructure investment also supporting the economy.

Given this, the board “judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time”.