By Lucy Hughes Jones
(Australian Associated Press)
The Reserve Bank has put a positive spin on the local jobs outlook, but says another rate cut could be on the cards because of weak inflation.
Economists are divided about whether the central bank will lower its cash rate from a record low 2.0 per cent, with some tipping two cuts in 2016 while others expect the RBA to sit tight for the rest of the year.
In the minutes of the central bank’s March board meeting, released on Tuesday, members acknowledged that employment growth stalled in January following a surge in late 2015, while unemployment climbed back up to six per cent.
“Nevertheless, conditions in the labour market had clearly improved since early 2015,” the RBA said.
“Leading indicators of employment had increased further and were consistent with employment growth in the months ahead.”
But the central bank said low inflation will allow it to cut the cash rate if jobs growth flattens out or the global economy goes into meltdown.
“Continued low inflation would provide scope to ease policy further, should that be appropriate to lend support to demand,” the minutes said.
Westpac chief economist Bill Evans says the dovish language around ongoing inflation suggests the RBA has edged closer to cutting.
ANZ’s co-head of Australian economics Felicity Emmett is tipping cuts in May and August.
“The bank will remain uncomfortable with the unemployment rate at or close to six per cent and inflation at the bottom of the target band,” she said.
But Westpac’s Mr Evans said the March meeting took place before the release of the December quarter GDP figures, which showed better-than-expected growth of 3.0 per cent for 2015.
He believes the RBA will keep rates on hold in 2016.
“However clearly considerable attention is being paid by the bank to developments in China,” Mr Evans said.
“Sudden adverse developments in that region would undoubtedly prompt consideration for policy change.”
He said markets will have to wait until the next board meeting to gauge the bank’s level of unrest around the recent jump in the Australian dollar.
JP Morgan Sally Auld believes the RBA won’t deliver a knee-jerk response to the higher dollar.
“We think the RBA will need to see both a persistent overvaluation of the currency and a weakening in domestic demand in order to respond with rate cuts,” she said.