Pressure remains on RBA to cut rates despite fall in unemployment

Property Prices

Pressure on the RBA to again cut interest rates has eased slightly after unemployment figures released from the Australian Bureau of Statistics for February show a small drop.

Despite the softening in unemployment for the month it has only eased the pressure on the RBA to cut rates, plenty of economists are saying it hasn’t eradicated it completely and there’s still a case to argue for further cuts. 

The official unemployment rate fell from 6.4 per cent to 6.3 per cent of the working population, seasonally adjusted, with an extra 15,600 people finding employment. 

After recent bad news on employment it came as a touch surprising, and the Australian dollar responded with a short-term jump before settling at US76.06c. 

Giving cause for pressure being on the RBA to cut rates again was Daniel Martin from Capital Economics who said unemployment still had not peaked in Australia. 

“The bigger picture is still that Australia’s economy is struggling to create jobs, and we still expect the unemployment rate to rise to 7 per cent by the end of the year,” he told The Age.

Economists are again divided on what move the RBA should make next with interest rates, and most lean towards a slightly pessimistic view of the economic outlook. 

Riki Polygenis from Australia and New Zealand Banking Group also spoke to The Age, and she said they don’t view the improvement in the unemployment rate as a change in economic trends. 

“Below-trend growth outcomes are consistent with a further gradual rise in the unemployment rate from here, with new hiring insufficient to keep pace with retrenchments in industries such as mining and manufacturing,” she said.

“For the RBA, the unemployment rate is only just shy of its forecast peak of 6.4 per cent.” 

“We continue to expect further easing from the RBA in the first half of the year, most likely at the next board meeting in April.” 

It’s a view shared by Jasmin Argylou from Aberdeen Asset Management who was also speaking to The Age when she said the RBA still needed to cut rates further.

“Unemployment remains high and, although the rate decreased marginally, the participation rate also dropped perhaps reflecting discouraged workers,” she said. 

“There is considerable slack in the economy, bringing with it disinflationary forces that will likely lead to additional monetary easing.”

More

News & Resources