Strong employment figures ease pressure for a February interest rate cut

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The RBA will be happy with new job market figures showing unemployment falling to its lowest level in nine months.

It means the central bank will be less likely to cut rates again next month after the Australian Bureau of Statistics revealed the national jobless rate fell by 0.1 percentage points to 5.1 per cent in December.

Here in Victoria there were 10,400 new jobs, but only 3,100 of those were fulltime, and the jobless rate actually rose by 0.3 percentage points because there were more people entering the search for work.

The strong employment figures had markets reel in the chance of an interest rate cut in February from 60 per cent down to 25 per cent.

Senior economist Gareth Aird says the figures reduced the urgency for a rate cut this early in the year.

“It’s too soon to say rate cuts are done [but] we have removed the February rate cut in our forecasts and pushed it back to April,” he told Australian Financial Review.

EY chief economist Jo Masters also spoke to AFR and said it was indeed likely the RBA would again face pressure to cut rates later in the year if it resists next month.

“With the economy already growing below potential, it remains likely that the unemployment rate will drift higher in coming months, which would present another headwind to household spending,” she said.

“Moreover, wage growth is likely to remain anaemic given ongoing spare capacity in the labour market with the under-utilisation rate at 13.4 per cent.”

All eyes will be on the employment figures for January which could well have been affected negatively by the recent bushfire crisis.


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