RBA Hints At Rate Cut, But Jobs Remain Key

By Glenn Dyer | More Articles by Glenn Dyer

The Reserve Bank of Australia has given another hint yet at a possible interest rate cut later this year – but made it clear it won’t happen if the jobs market remains solid, something we will find out tomorrow in the March Labour Force data to be released by the Australian Bureau of Statistics.

In the minutes for the April 2 monetary policy meeting released yesterday, the RBA also made it very clear there is no chance of a rate rise any time soon.

“Members agreed that the likelihood of a scenario where the cash rate would need to be increased in the near-term was low,” yesterday’s minutes read.

So what about a rate cut, something that seems to have become more possible since February? The minutes made it clear the board believes that should inflation stay low and unemployment trend higher, a rate cut could happen

“Members also discussed the scenario where inflation did not move any higher and unemployment trended up, noting that a decrease in the cash rate would likely be appropriate in these circumstances.”

But so far there doesn’t seem to be a strong case for a move in the near term.

“Members agreed that inflation was likely to remain low for some time. Wages growth had remained low, there continued to be strong competition in the retail sector and governments had been working to ease the cost of living pressures, including through their influence on administered prices. In these circumstances, members agreed that the likelihood of a scenario where the cash rate would need to be increased in the near term was low.”

But the minutes do reveal that the discussion found members believed the effect of an even lower cash rate on the economy could be smaller than in the past given high household debt and crumbling property prices.

“Nevertheless, a lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and by reducing required interest payments on borrowing, freeing up cash for other expenditure,” the minutes noted.

So a rate cut may have moved a touch closer, but as previously suggested, it will take a worsening in the jobs market to advance the timing, or even set the timing. The key figures are – the annual rate – 2.3% in February and the 20-year annual average – 2.0%, plus the monthly jobless rate and the size of any rise or fall in job numbers.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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