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Who needs fireworks when the Reserve Bank of Australia (RBA) can fire up the markets just fine?

In case you missed it, the central bank just printed that it will keep its 1.50% interest rate steady for another month in July.

But that’s not what surprised market players – they already expected no policy changes. With the European Central Bank (ECB), Bank of England (BOE), and Bank of Canada (BOC) all turning hawkish lately, traders had expected the RBA to join the bandwagon.

But it seems like RBA Governor Philip Lowe and his team are immune to such pressures. In fact, they might have taken care NOT to sound hawkish as they refused to highlight the recent improvements in employment.

AUD 5-Minute Forex Charts
AUD 5-Minute Forex Charts

The Aussie took most of the heat, with the high-yielding currency selling off against its major counterparts during the Asian session.

Why would the central bank not join the hawkish bandwagon anyway? Here are three possible reasons:

1. Waiting on wage growth

Like many major central banks, it seems like the RBA is looking closely at wage growth for its policy direction.

See, while stronger employment growth and positive business sentiment are all well and good, it’s higher wages that would pay household debts AND encourage blokes and sheilas to spend their moolah on goods and services.

In an interview in June, RBA Board Member Ian Harper even hinted that faster wage growth is key to a next rate hike, saying that “Until we get a recovery in the growth of wages we won’t get a recovery in inflation of any note.

And if that’s not enough to convince you, he also added that “We’re targeted on getting inflation back into the RBA’s target range – that will occur as wages growth begins to pick-up.

Unfortunately, the RBA believes that “consumption growth remains subdued, reflecting slow growth in real wages and high levels of household debt.

More importantly, it also believes that wage growth “remains low” and will remain low “for a while yet.” Duhn duhn duhn.

2. Growth and inflation expectations remain subdued

Last month the RBA (rightly) called that GDP will slow down in Q1 2017. However, it also assured that “economic growth is still expected to increase gradually over the next couple of years to a little above 3%.

The central bank didn’t feel any such optimism in July. In its statement, the RBA noted that the slowdown in Q1 2017 growth “partly” reflected temporary factors.

More importantly, it removed its 3% growth forecast, this time only saying that the “Australian economy is expected to strengthen gradually.

It’s also not feeling much love for headline inflation, which “have declined recently in response to lower oil prices” after moving higher last year. Ditto for core inflation, which the RBA believes “remains subdued.”

On the whole, the RBA’s cautious tones on the outlook for both growth and inflation have encouraged speculations that the central bank will downgrade its forecasts this August. Yikes!

3. Australia’s largest banks are doing the heavy lifting

One of the more popular reasons for a central bank to raise interest rates is to cool its housing markets. But with regulators forcing Australia’s largest banks to exceed the RBA’s rates, the pressure to tighten has eased.

Of course, it might have also helped that credit ratings agency Moody’s has taken notice of their “elevated risks” due to “significant house price appreciation” rising in tandem with “high and rising household indebtedness.”

Major Australian banks are concentrating on raising mortgage rates for investors and interest-only borrowers who both fuel indebtedness and property prices, while slashing rates for owner-occupiers and principal-and-interest borrowers.

This is good news for the RBA who’s concerned that “growth in housing debt has outpaced the slow growth in household incomes” but believes that “The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness.

As mentioned in our RBA trading preview yesterday, these regulations seem to be doing the trick. However, many analysts have pointed out that the RBA would likely wait for more evidence that the regulations are working before they make their next steps.

So, it looks like the RBA remains firmly in the neutral camp for now despite other central banks hopping over to the hawkish side.

Fortunately, we also know that wage growth will likely be key to the RBA’s next steps. Until positive trends in employment translate to higher wages, or until we see enough significant pressure on inflation, Lowe and his team will likely keep their rates steady for a while longer.