SYDNEY (Reuters) - Australia's top central banker said on Wednesday he was "very comfortable" with keeping interest rates at record lows as inflation fell short of expectations yet again.
The Reserve Bank of Australia (RBA) has held policy rates at 1.50 percent after last easing in August 2016, as it balances lukewarm consumer prices with household debt at a daunting 190 percent of disposable income.
"I am very comfortable with the current setting of policy because it creates jobs," RBA Governor Philip Lowe said at a lunch event in Sydney.
Data out on Wednesday showed the core inflation rate - which policymakers focus on - remained below target for a sixth straight quarter in the April-June period.
Such tepid figures combined with Lowe's comments may well put to rest speculation over domestic interest rate hikes which flared up after the Bank of Canada increased its policy rate to 0.75 percent this month.
"There is no smoking gun to justify a change of interest rates in any direction," said Craig James, chief economist at CommSec in Sydney.
"Inflation isn't rapidly moving below the target band, nor is it rapidly lifting back into the target band. So the Reserve Bank can stay on the interest rate sidelines."
Wednesday's data showed underlying inflation rose 0.5 percent in the second quarter from the first, matching forecasts. The annual rate of 1.8 percent was below the RBA's long-term target band of 2 percent to 3 percent, where it has been since the start of 2016.
The listless data took the wind out of the Australian dollar's sails <AUD=D4>. It was last down 0.4 percent at $0.7903 versus last week's peak of $0.7992 - a level not seen since May 2015.
Lowe said the numbers were in line with the RBA's expectations, pointing to Australia's subdued wages growth as the key factor keeping inflation below target.
SNAIL-PACED WAGES
The RBA expects only a gradual pick-up in incomes as spare capacity in the labour market remains high.
Wage growth at 1.9 percent is crawling at the slowest pace ever and the underemployment rate, which measures people wanting to work more hours, is near record highs.
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.
Other 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.
But the RBA seems to be in no rush to move the dial on interest rates.
"We have not sought to stimulate a rapid lift in inflation. The fact that the labour market has been generating sufficient jobs to keep the unemployment rate broadly steady has allowed us to be patient," he said.
"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."
(Reporting by Swati Pandey and Wayne Cole; Editing by Eric Meijer)
