Decline in unemployment could put cash rate on ice

by Julia Corderoy13 Mar 2015
Encouraging unemployment figures may mean the Reserve Bank can hold off on cutting interest rates as early as next month.

Australian’s unemployment rate eased from 6.4% in January to 6.3% in February, according to the latest labour force statistics released by the Australian Bureau of Statistics.

Both full time and part time jobs rose in February, creating a total of 15,600 new jobs in the labour market – an uplifting recovery after falling by 14,600 in January.

Craig James, chief economist from CommSec, said this is an “encouraging result” overall, although there is still some volatility in the data. 

“As always there is volatility in the seasonally adjusted data – notably the drop in unemployment in Victoria and the fall in the workforce participation rate,” he said. The participation rate eased from 64.8% in January to 64.6% in February.

“But the data shows that jobs are being created, more hours are being worked by existing workers, and more people are finding work. The unemployment rate looks like it is topping out between 6.0-6.5 per cent, but much will depend on businesses and consumers gaining confidence and starting to spend more freely in coming months.”

As such, James said the Reserve Bank may decide to leave the cash rate on hold at its April board meeting. 

“Each Reserve Bank meeting is a ‘live’ meeting – in other words, a rate cut will be discussed in April and May and so on. But there is no rush. The Reserve Bank can wait until the inflation data is released in late April and then look more closely at the need to cut rates at the May Board meeting,” he said.