RBA governor rules out interest rate hikes until wages rise

Related Story: Wall Street closes higher after wild trading day, ASX to rebound

The Reserve Bank governor has dismissed any chance of a rate hike any time soon, after a week of financial turmoil sparked by fears of rapidly rising inflation and interest rates in the United States.

Philip Lowe said the recent market volatility would not have any impact on the growth outlook for Australia, which remains at "a bit above 3 per cent over the next couple of years".

But he also intensified his calls for higher wages to help boost the Australian economy.

Dr Lowe told a room of leading business figures that although "it is likely that the next move in interest rates in Australia will be up, not down", the RBA "does not see a strong case for a near-term adjustment in monetary policy".

The United States is expected to raise interest rates again next month, but the Governor says rates in Australia do not need to "move in lock-step".

He argued circumstances in Australia were very different.

"We are still some way from what could be considered full employment, and our central scenario for inflation is for it to remain below the midpoint of the medium-term target range for the next couple of years," he said.

Once again, Dr Lowe zeroed in on Australia's historically low rates of wages growth.

He was very clear that bigger pay increases were needed to help the economy, saying "some pick-up in wage growth would be a welcome development".

"Indeed, a lift in wage growth is likely to be necessary for inflation to average around the midpoint of the 2-3 per cent medium-term inflation target," he said.

He dismissed arguments higher wages were only possible if there was an associated lift in productivity.

"Even if productivity growth were to be around the average of recent years, a faster rate of wage increase should be possible," he said.

He said higher wages would help contain the dangers of ballooning household debt, which recently soared to 200 per cent of income.

"The slow growth in incomes has weighed on spending, including by making it harder for some households to pay down their debts," he said.

He also made the point that higher wages would make Australia a fairer place.

"Stronger growth in real wages would also boost household incomes and create a stronger sense of shared prosperity," he said.

Dr Lowe highlighted the need to return to a federal surplus to build a buffer to deal with a future economic shock.

"Ensuring that our public finances are on a sustainable footing is important to ensuring that we have similar flexibility in the future," he said.

But he refused to buy into the corporate tax debate.

"The issue of how the tax system affects the competitiveness of Australia as a destination for investment is one of ongoing political debate," he said.

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