Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
The Reserve Bank has again singled out the jobs market as the key for prospects of another interest rate cut.
In the minutes of its latest monthly board meeting, released on Tuesday, the RBA said the combination of the rising exchange rate and sluggish wages growth meant inflation would likely remain low over the next year or so.
“Continuing low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand,” the RBA said.
The RBA’s cash rate is already at a record low of 2.0 per cent, and has been since May last year.
But the necessity of another cut will depend largely on the labour market, where the RBA is satisfied that things are going well enough to allow it to stay on the fence for the time being.
“New information would allow the board to reassess the outlook for inflation and decide whether the improvement in labour market conditions evident last year was continuing.”
The RBA made a point of looking through the recent volatility in employment data – very strong jobs growth over September, October and November, followed by three flat months.
Such volatility was not unusual, the RBA said in the minutes.
Since the board meeting on April 5, official figures heralded an end to the apparent jobs growth pause with an above-average rise in employment and a two-and-a-half-year low in the jobless rate in March.
The RBA’s signal of the importance of the jobs market repeated the message in the previous monthly minutes.
And one factor important to the jobs market, as the economy undergoes its transition away from growth dominated by mining investment, is the growth-sapping effect of the higher Australian dollar.
“Members noted that an appreciating exchange rate could complicate progress in activity rebalancing towards non-mining sectors of the economy,” the minutes said.
While it’s unlikely that the RBA would try to manipulate the exchange rate using the cash rate – a futile quest with policy rates in the major economies at 0.5 per cent or less – its negative impact on growth and employment could make the difference in a finely balanced decision.