We see the RBA lifting its cash rate in early 2018 - HSBC

"The RBA kept its cash rate unchanged at 1.50%, in line with market pricing and all 27 economists in the Bloomberg survey," notes Paul Bloxham, Chief Economist, Australia, NZ & Global Commodities, at HSBC Bank Australia.

Key quotes:

"On the positive side, the central bank pointed out that the outlook for business and infrastructure investment had improved and that jobs growth had been strong in recent months. Against this, they noted that slow real wages growth and high household debt levels were likely to constrain consumer spending. We expect the recent improvement in the labour market to deliver a modest pick-up in wages growth and underlying inflation in coming quarters. We see the RBA lifting its cash rate in early 2018."

"As is often the case, today's RBA statement was quite similar to last month's and only added an incremental update in various aspects of the story. Where the story has changed, the RBA seemed careful to be quite cautious in its tone. Although they pointed out that business and infrastructure investment were picking up, the statement cautiously noted that 'a consolidation of this trend would be a welcome development'."

"This positive development was then quickly downplayed, with a reference to 'slow growth real wages growth and high levels of household debt' constraining household spending. The statement then noted that employment 'has continued to grow strongly' and that the forward indicators are positive, but that 'wages growth remains low' and that 'this is likely to continue for a while yet'."

"On the housing market, the RBA noted that housing debt had been outpacing household income growth for some time and that prudential measures were being used to address the 'medium-term risks associated with high and rising household indebtedness'. All eyes will now be focused on the Q3 CPI print, due to be published on 25 October, to gauge how demand is running relative to supply in the economy. Our view is that underlying inflation will nudge back up to the bottom edge of the RBA's 2 to 3% target band. If so, the next board statement may turn a bit more positive. We then expect the next GDP print, due in early December, to show growth lifting to an above-trend pace (over 3% y-o-y), which should ratchet the story even further in the positive direction."