Economists think that the Reserve Bank of Australia might already feel increased pressure to lower official rates because the unemployment rate unexpectedly rose to higher than the trend.
According to the Australian Bureau of Statistics (ABS), the unemployment rate increased to 5.2% in Australia in April, following seasonal adjustments. This was more than was anticipated at 5%.
The latest unemployment data shows that the rate of joblessness has risen from the low of 4.944% in February 2018 to its highest level since August 2018.
Philip Lowe, RBA Governor stated that the RBA maintained the cash rate at 1.5% due to the strength of the labour market. Kaixin Owyong, NAB economist, believes that the NAB economist Kaixin Owyong is the best measure of labour market slackness or the underutilisation rate, which rose to 13.7%. The sum of the unemployed and those searching for work is called the “underutilisation ratio”.
Owyong stated that the RBA had recently stated that there would not be any improvement in the labor markets. Accordingly, a reduction is justified.
Also Read: Why RBA decided not to push through with a rate cut
Robert Thompson, RBC Capital said that if the unemployment rate continues to rise, then there is a greater chance of reducing it.
They cannot just watch the trend change if it isn’t. ABC News: He stated that although we don’t know where the pain threshold is, it was clear that they could imagine that the threat of 5.25% to the bank would make them do something.
ABC News spoke with Belinda Allen, an economist at the CBA, who said that the RBA could lower rates to close the gap. This would bring inflation back to its target.
She said that this publication only tells us the story of the past months, and that the RBA kept rates at that level.
Callam Pickering is the APAC economist for Indeed. He stated that a rate decrease appears more likely in three months. He stated that while unemployment and underutilisation could be immediate reasons for a rate cut, the RBA might still be able to find reasons to maintain rates at current levels.
“Now the increase in labour market slack was mostly driven by higher participation – a rare case when higher unemployment may be interpreted in a positive light. The Reserve Bank has an easy exit option if they want to wait,” he said.
Bernard Keane (market observer) says it is unclear if the recent unemployment figures will ultimately move the needle for central bank to reduce rates. This is especially true given that the labour force participation rate rose to 65.8%.
“The RBA has an issue. It created it in its May Statement. “Another improvement in the labour market was possible.” It’s hard to argue that an increase of unemployment is a good sign. However, he said that the jobs market was still thriving, even at lower levels that 2017 and 2017.