SYDNEY (Reuters) - Australia’s central bank was confident core inflation would pick up by early 2018, but worries about a subdued labour market amid soaring household debt forced it to stand pat on rates earlier this month.

A worker pushing a trolley walks with pedestrians past the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, March 7, 2017. REUTERS/David Gray/Files

Minutes of the Reserve Bank of Australia’s (RBA) May meeting showed jobs and housing were at the forefront of policy makers’ minds.

“The board continued to judge that developments in the labour and housing markets warranted careful monitoring,” the six-page minutes of the policy meeting showed.

The central bank left interest rates at a record low 1.50 percent for a ninth straight month in May after last easing in August 2016.

Board members felt there was “significant uncertainty” about how to measure the degree of spare capacity, given the high levels of underemployment in recent years.

The unemployment rate is at a 13-month high of 5.9 percent while measures of underemployment - which capture workers who want to work more hours - was near all-time highs.

Data out last month showed tentative signs of a turnaround in an otherwise uninspiring employment sector with 60,900 jobs added in March, all full-time. Besides, leading indicators of the economy have generally been more positive.

Yet board members also saw greater risks in the housing market as borrowing for investment fuelled breakneck price rises in Sydney and Melbourne with home values are racing at a blistering 16 percent and 15 percent, respectively. [nL4N1I312H]

The surge in home prices in the major cities skidded to a halt in April, but the RBA made no reference to the slowdown in its statement, repeating prices have been rising “briskly” in some markets.

Australian regulators announced measures earlier this year to restrain lending to speculative property investors in a bid to cool the sizzling market and tighten lending standards.

RBA Governor Philip Lowe has repeatedly argued that cutting rates further would only encourage more borrowing by households who are already heavily indebted, outweighing any economic benefits.

With wages growing at record lows, debt was outpacing incomes and threatening to weigh on consumer spending.

“Subdued growth in labour costs and strong competition in the retail sector had continued to have a dampening effect on aggregate inflation,” the minutes showed. “A fall in housing prices could also weigh on consumption growth.”

The RBA’s angst over housing has convinced financial markets there will be no more cuts in interest rates despite weakness in the labour market.

The central bank said the economy likely grew at a moderate pace in the first quarter and repeated its warning that a rise in the Australian dollar could complicate the outlook.

Futures market <0#YIB:> imply scant chance of a change to interest rates this year.

The RBA said it was seeing signs of higher inflation in some components of non-tradables inflation such as electricity prices and dwelling construction costs.

Latest data showed Australia’s consumer price inflation tiptoed atop 2 percent last quarter for the first time since 2015 but the RBA’s favoured measures of underlying inflation stayed below its target band of 2-3 percent.