By Swati Pandey
SYDNEY, July 31 (Reuters) - Australia's central bank is expected to keep interest rates at a record low 1.50 percent on Tuesday as it balances a "mixed" labour market and tepid inflation against soaring household debt.
The Reserve Bank of Australia (RBA) last cut official cash rates in August 2016 to head off the danger of deflation.
Data out last week showed inflation remained below the RBA's long-term target band of 2-3 percent for a sixth straight quarter in the April-June period. major reason for lukewarm consumer prices is subdued wage growth at 1.9 percent - the slowest pace on record and less than half the rate workers enjoyed a decade ago.
This has threatened consumer spending with ordinary Australians cutting back on shopping, particularly for discretionary items such as clothing and footwear. point to elevated levels of underemployment - which captures workers looking for more hours - as one of the key factors suppressing wages.
That is despite recent strength in the labour market. Full-time jobs made a remarkable comeback in June, gaining for a fourth month while the unemployment rate steadied at 5.6 percent. indicators of the economy's health have also been generally positive, with a measure of business conditions jumping in the June quarter to its highest level since early 2008. governor Philip Lowe last week welcomed the recent pick-up in the labour market, adding the "broadly steady" unemployment rate had allowed it to remain patient on policy. big worry for the RBA though is a rapid increase in household debt amid soaring property prices.
The central bank fears that the trend of household debt outpacing income growth was eating into spending elsewhere in the economy.
Household debt is already at 190 percent of disposable income while property prices are climbing in the two key markets of Sydney and Melbourne at an annual pace of 12 percent and 13.7 percent respectively.
"Household debt is high and rising faster than the unusually slow growth in incomes," Lowe said in a speech last week.
"We are intent on delivering Australians an average rate of inflation over time of between 2 and 3 per cent. We are seeking to do this in a way that supports sustainable growth in the economy and that best serves the public interest."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Australia CPI and policy rate
http://reut.rs/2hezvbY Australia's GDP growth slows, wages rising at record-low pace
http://reut.rs/2eZVmDb Australia's "mixed" labour market
http://reut.rs/2hex9dd Record high household debt, house prices
http://reut.rs/2f0hiym
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