Why a September 2018 RBA rate hike is unlikely?

In Australia, industries that used to generate employment in large numbers are looking to scale back. The automobile manufacturing industry is effectively dead with Toyota and Ford closing their plants and Holden closed the last car manufacturing plant in Australia citing a strong AUD currency, input costs and meagre economies of scale. The Australian lender NAB, announced the largest cost reduction plan by an Australian bank – 4,000 jobs or 12% of its workforce – citing automation and growth of digital banking.
It’s not just the loss of jobs that are contributing to an oversupply of workers and hence lower wages; a recent survey by two Australian universities reveal that one third of backpackers and a quarter of foreign university students are being paid half or less the minimum wage.
The low wage growth has the RBA concerned as consumer sentiment is weak and retail sales over the few months have disappointed, translating into weak inflation prints. The other concern is the record debt that Australians have taken on with the average household now twice as indebted as the Chinese. If the RBA hikes the policy rate and in the absence of strong wage growth, households may falter on the repayments and valuations may fall, elevating the threat of personal bankruptcies as regulations in Australia have full recourse to the customers private property unlike in the US.
The lacklustre wage growth in Australia for the last several quarters is the underlying reason that RBA does not want to hike the policy rate from a record low of 1.5%. Markets have now shifted their expectations of a rate hike from H1 2018 to September 2018, which due to several structural dynamics, may seem overtly optimistic.

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