* RBA signals daunting hurdle for another cut to interest
* Record high household debt, low wages leading to slow
* Q4 wage growth at all-time low of 1.9 pct a year
By Swati Pandey and Wayne Cole
SYDNEY, Feb 22 The head of Australia's central
bank gave the clearest signal yet on Wednesday that further cuts
in interest rates would not be in the national interest as the
danger of a debt-fuelled boom and bust was just too severe.
The Reserve Bank of Australia (RBA) has kept interest rates
at a record low 1.50 percent since last easing in August, and
Governor Philip Lowe hopes the current setting will be enough
to deliver balanced economic growth.
"We set out to choose the path that, in our judgement, best
promotes the welfare of the Australian people," he said in a
speech in Sydney, leaving little doubt that encouraging yet more
borrowing would not meet that standard.
Lowe noted that high levels of debt combined with subdued
wage growth were already making households wary of spending
freely, a drag that was only set to get worse.
Data out on Wednesday showed annual pay rises were stuck at
an all-time low of 1.9 percent, with ongoing weakness in private
Lowe held out the hope that wage growth had finally
bottomed, although the RBA's liaison with firms suggested an
upturn was not imminent.
A high and rising unemployment rate might add to the case
for more stimulus, Lowe said, yet the bank was satisfied that
the labour market was heading in the right direction.
"Trends in the labour market are the one to watch in 2017
rather than the inflation prints," said Gareth Aird, an
economist at Commonwealth Bank.
"We expect core inflation to continue to print below the
Bank's target but that won't be enough for Lowe to cut the cash
The futures market has almost priced out a chance
of a rate cut this year, with some investors even toying with
the idea of a rate hike by early 2018.
Lowe, who took over the reins at the RBA last September, has
repeatedly stressed about the diminishing returns to the economy
from lowering interest rates further, largely due to ballooning
The ratio of household debt to disposable income is at an
all-time peak around 180 percent, while the saving rate has
fallen. Mortgage debt stands at A$1.7 trillion, larger than the
country's annual economic output.
"We have been seeking to balance the risks from having
inflation low for a longer period against the risks from
attempting to increase inflation more quickly, which would
partly occur through encouraging more borrowing," said Lowe.
While there was a danger that low inflation could lead to a
self-fulfilling decline in inflation expectations, he did not
see "a particularly high risk" of this in Australia.
However, he did see danger in spurring more debt.
"At some point in the future, households having decided that
they had borrowed too much, might cut back consumption sharply,
hurting the overall economy and employment," he warned.
"It is difficult to quantify this risk, but it is one that
is difficult to ignore."
Australia's economy shrank in the third quarter of last year
as businesses, consumers and government all cut back on
spending, but Lowe said earlier this month that it looked to
have bounced back to "reasonable growth".
(Reporting by Wayne Cole and Swati Pandey; Editing by Eric
Meijer and Kim Coghill)