Interest rates were held at 4.75 percent by the Reserve Bank of Australia on the back of rising concerns about the European sovereign debt crisis despite wage pressures from the shortage of skilled labour on the back of a 33.2 percent increase in job ads over the last year.
“Since the previous Board meeting, concerns about the creditworthiness of a number of European governments have again become the main focus of financial markets, with a marked rise in sovereign bond spreads for some euro-area countries and an increase in volatility. ” Governor Stevens said.
Employment growth and thus increasing wage levels are still a concern for the RBA, though is in line with earlier expectations from the RBA and has been factored into previous interest rate increases by the central bank.
“Employment growth has been very strong over the past year, though some leading indicators suggest a more moderate pace of expansion in the period ahead. After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year.” said Stevens.
“The exchange rate has risen significantly this year, reflecting the high level of commodity prices and the respective outlooks for monetary policy in Australia and the major countries. This will assist, at the margin, in containing pressure on inflation over the period ahead. Over the next few quarters, inflation is expected to be little changed, though it is likely to increase somewhat over the medium term if the economy grows as expected.
“Following the Board’s decision last month to lift the cash rate, and the subsequent increases by financial institutions, lending rates in the economy are now a little above average. The Board views this setting of monetary policy as appropriate for the economic outlook.” Said Stevens.