Australia's central bank governor signals steady rates for a while yet

By Swati Pandey and Wayne Cole

MELBOURNE (Reuters) - Australia's central bank aims to keep interest rates at record lows for a while yet, governor Philip Lowe said on Friday, with any tightening "quite some time away" and likely to be gradual as households try to whittle down a mountain of debt.

The Reserve Bank of Australia (RBA) has left interest rates at an all-time low 1.50 percent after last easing in August 2016 as it balances lukewarm inflation with skyrocketing household debt.

"It was a reasonable assumption that the next move in interest rates was up rather than down but it is quite some time away," Lowe said at the RBA's semi-annual testimony to parliament's economics committee in Melbourne.

Futures market implies steady rates until early 2018 with a hike fully priced in only by next Christmas.

But the tightening cycle, when it begins, will be slow as policymakers are aware of the impact higher interest rates would have on households saddled with a mountain of debt, Lowe said. The household debt-to-income ratio is at a record high 190 percent and rising faster than incomes.

Annual wage growth is inching at its slowest ever pace of 1.90 percent. Together, that has weighed on consumer confidence and spending in recent months.

"The governor's comments today provided more clarity and reinforced our view that interest rates are likely to remain on hold over the next 12 months," said Craig James, chief economist at CommSec. "There are no signs of imminent action on rates."

AUSSIE DLR WOES

Lowe said he would like to see annual wages growth of 3.5 percent or more as economic growth picks up. The RBA has said it is confident that the A$1.7 trillion economy will accelerate over the next two years to around 3 percent.

Lowe also expects inflation to edge higher over time, as utility prices in the country are surging - another reason households are fretting over their finances.

A risk to its forecasts is a further appreciation in the Australian Dollar, Lowe added.

The Aussie is up about 6 percent since June as it climbed to a two-year peak of $0.8066 last month, largely as the U.S. dollar has tumbled due to expectations of a gradual pace of rate increases by the Federal Reserve. The Aussie has since faltered and on Friday held at a 3-1/2 week trough of $0.7844.

When asked if the RBA would intervene in the forex market to tame the Aussie, Lowe said "we have the tools" but would deploy them only in an extreme scenario.

(Reporting by Swati Pandey and Wayne Cole in Sydney; Editing by Paul Tait & Shri Navaratnam)