Hopes of near-term relief for borrowers have taken a hit after the Reserve Bank’s governor said it wouldn’t have cut interest rates even with a surprise jump in unemployment.
Michele Bullock brushed off suggestions the central bank was blindsided by a spike in the jobless rate to 4.3 per cent less than two weeks after the central bank board held interest rates steady in a split decision that shocked markets.
In minutes detailing the early July meeting, board members noted the jobs market was still tight and it was prudent to wait for more data, including unemployment figures, to confirm inflation was sustainably on target before cutting rates.
But asked on Thursday if the board’s decision would have been different if it had had access to that data before its last meeting, Ms Bullock said she did not believe so.
“The monthly numbers jump around,” she told an Anika Foundation fundraising lunch in Sydney.
“You’ve got to take a little bit of signal from monthly numbers. But I wouldn’t over-interpret every single monthly number.”
The unemployment rate for the June quarter was in line with the RBA’s prediction, Ms Bullock said.
While the spike in unemployment in June surprised market economists, a consensus of whom predicted the rate to remain at 4.1 per cent, the central bank saw it coming.
“Some of the coverage of the latest data suggested this was a shock – but the outcome for the June quarter was in line with the forecast we released in May,” Ms Bullock said in a prepared speech.
“That on its own suggests that the labour market moved a little further towards balance, as we were anticipating.”
The comments pushed back on expectations a rate cut at the next RBA meeting in August is inevitable.
The rates market has priced in a 25 basis point cut on August 12, which would bring the official cash rate down to 3.6 per cent.
NAB head of market economics Tapas Strickland said the comments leaned slightly hawkish and highlighted the importance of upcoming inflation data.
Volatile monthly CPI data suggested inflation might not have fallen as much as the RBA had forecast, which could also threaten an August cut if confirmed in quarterly data released by the Australian Bureau of Statistics on Wednesday.
“We still think it will show inflation declining slowly towards 2.5 per cent, but we are looking for data to support this expectation,” Ms Bullock said.
While the jobs market was easing, it was unlikely unemployment was about to jump up above RBA forecasts.
“We do highlight that that’s a possibility, but the forward looking indicators, including vacancies, including lay-off rates, including the information we’re getting from liaison (with businesses), aren’t suggesting that anything’s falling off a cliff any time soon,” she said.
Ms Bullock also signalled concerns over the way Donald Trump was exerting political pressure on her US counterpart Jerome Powell.
The president has ramped up pressure on the Federal Reserve chair in recent weeks, calling him a “numbskull” and saying he will be out of the job in eight months for resisting demands to lower interest rates.
“I would say, wouldn’t I, that I think central bank independence is very important,” Ms Bullock said.
“Certainly, what’s going on in the United States is challenging that.”
The Fed was doing its job by focusing on the economy and not getting drawn into the political debate, she said.
Australian Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national newswire and has been delivering accurate, reliable and fast news content to the media industry, government and corporate sector for 85 years. We keep Australia informed.
