The Reserve Bank is likely to delay lowering the official interest rate on the back of strong employment over November/December, said ANZ Research ahead of the central bank’s meeting next week.
The unemployment rate dropped to 5.1 per cent at the end of the year, its lowest level since April 2019, according to the latest information released by the Australian Bureau of Statistics (ABS).
The seasonally adjusted participation rate remained steady at 66.0 per cent, and the number of people employed increased by around 29,000, the ABS said last week.
Looking at the data, ANZ Research said that the improvement reinforces the RBA’s view that “the Australian economy appear[s] to have reached a gentle turning point”.
“This makes it difficult to see the RBA easing in February, notwithstanding the short-term hit from the bushfires and the likely downward pressure on near-term growth expectations from the weakness in consumer spending evident in the Q3 GDP data,” the group noted.
Accordingly, it said it is no longer forecasting a February rate cut. ANZ Research underlined that further rate cuts are, however, more likely than not over the course of 2020.
“Continued weakness in consumer spending and soft business investment suggest that progress towards lower unemployment will stall at a level that is inconsistent with the RBA achieving its policy objectives,” it said.
“We are in the process of reviewing the likely timing of these future rate cuts.”
The RBA’s next monetary policy board meeting will be held on Tuesday, 4 February.
Two more cuts
In its latest Access Economics Business Outlook, Deloitte predicted last week that the RBA will cut rates twice more, “partly as the economy is still weak, but mostly because inflation is so stubborn”.
The financial services giant explained that rate cuts aren’t simply a reflection of a weaker economy, they are aimed to cater for a different economy — with more profits and more jobs.
“However, the punters have never lived through a time when the RBA was cutting rates for two reasons rather than one. They are therefore assuming that everything the RBA is doing and saying relates to the first reason — a weaker economy. That simply isn’t true,” Deloitte opined.
“Interest rates are really low, and that’s where they’re set to stay for some time,” the giant assured, adding that while the RBA wants the Feds to “pitch in to help”, “absent a bigger crisis, that doesn’t look likely”.
Maja Garaca Djurdjevic is the editor of My Business.
Maja has an extensive career as a journalist across finance, business and market intelligence. Prior to joining Momentum Media, Maja spent several years unravelling social, political and economic intricacies in Eastern Europe.