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Rate rise on cards, but bank boss says not before wages increase

Reserve Bank governor Philip Lowe has not ruled out an interest rate increase this year, but he still wants to see higher wages growth before pulling the trigger.

Feb 03, 2022, updated Feb 03, 2022
Reserve Bank Governor Philip Lowe. (Photo: AAP Image/Joel Carrett)

Reserve Bank Governor Philip Lowe. (Photo: AAP Image/Joel Carrett)

He told the National Press Club on Wednesday Australia is closer to full employment and achieving the inflation target than he had earlier anticipated and a rate rise later this year is “plausible”.

But he wants wages growth to accelerate from its current low level of 2.2 per cent to ensure inflation holds sustainably within the two to three per cent target.

The RBA, which will release its full suite of forecasts in Friday’s quarterly statement on monetary policy, does not expect wages to be growing at over three per cent until 2023.

Lowe expects the unemployment rate to decline to around 3.75 per cent by the end of this year and be sustained at around this rate during 2023 after falling to a 13-year low of 4.2 per cent in December.

“We have no contemporary evidence about how the labour market and how wages are going to respond to an unemployment rate below four per cent,” Lowe said.

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“The last time we were there was more than 50 years ago.”

Meanwhile, the Australian Bureau of Statistics will release building approvals figures for December on Thursday.

Economists’ forecasts point to a one per cent decline in the month, resuming the downward trend that has been evident since government stimulus began to be unwound earlier last year, and after a 3.6 per cent increase in November.

The ABS will also release international trade numbers for December, where forecasts are centring on a $9.9 billion surplus, a modest improvement on the $9.4 billion surplus record in November.

The surplus has been narrowing since the $13.7 billion posted in July as a result of the iron ore price being well off its peak and imports rising as the economy recovers from COVID-19 lockdowns.

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