The Reserve Bank of Australia appears set to hike interest rates in the second half of 2017 after it sees a lift in the growth of wages, says NAB.
According to NAB’s December edition of The Forward View report, the RBA will not have much impetus to begin hiking the cash rate until it sees a pickup in wages growth, which looks to start improving thanks to a stronger labour market.
“The RBA will be reluctant to raise rates until there are reliable signs that wages growth and inflation are moving in the right direction, especially as the cooling housing market has simultaneously lessened the urgency for RBA rate hikes,” the report said.
“However, we expect that stronger labour market conditions will see wage growth lift over time.”
The participation rate fell for the first time in 2017 during October to 5.4 per cent as labour demand was met with participation largely by older workers and women, the report said.
NAB forecasted the unemployment rate would continue falling to 5.2 per cent towards the end of 2018 “as the labour market improves”.
“Further strength in employment growth will help to narrow the gap between business and households spending.
“On balance, for now, we retain our view that the RBA will begin gradually lifting interest rates in H2 2018 as the unemployment rate falls further.”
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