RBA: Tighter Credit and Low Consumption Pose Risks to Australian Economy

Falling household consumption, driven by low income growth and plunging house prices, has emerged as the biggest risk to Australia’s economy, according to a new Reserve Bank report.

In the minutes of the its policy meeting released on Tuesday, the Reserve Bank said while cash rate was more likely to go up than down, declining household consumption might pose risks to economic growth.

“The outlook for household consumption continued to be a source of uncertainty because growth in household income remained low, debt levels were high and housing prices had declined,” the minutes reported. “Members noted that this combination of factors posed downside risks.”

Despite acknowledging the risks, the Bank members remained optimistic that an expected boost in resource exports and business investment over the next two years will maintain GDP growth above potential.

The Bank’s board kept the cash rate at 1.5 percent. The members indicated there will be no adjustment in the near-term to maintain the Bank as “a source of stability and confidence” and support “sustainable growth in the economy and achieving the inflation target over time”.