RBA expected to hold cash rate in February: Finder

Positive employment data will stall the RBA’s race to the bottom, but the twin shocks of the bushfires and coronavirus mean the bank will be forced to cut again soon, according to comparison site Finder.

While full-time employment growth remained below the average annual growth for the last 20 years, the fact that it isn’t worse means that the pressure is off the RBA to cut again – even as the bushfire emergency puts pressure on the economy.

“The recent labour market data has been more positive than we anticipated, so we've pushed back our call for one final rate cut to Q2 2020,” Oxford economics head of Australian macroeconomics Sarah Hunter told Finder’s cash rate survey.

“But the forward indicators for jobs growth have continued to weaken (and the impact of the bushfires is a further downside risk), which means we still expect the RBA to cut one more time in this loosening cycle.”

The rate cut comes as the novel coronavirus continued to rampage through world markets and Australia closes its borders to Chinese nationals – something that will likely hit the economy hard in the short term, putting a drag on tourism and universities.

“With the economy a long way from the RBA’s full employment and inflation objectives, the bushfires likely to knock growth in the short term and the China coronavirus posing a new threat to global growth and tourist arrivals, the RBA should be cutting rates at its February meeting,” AMP chief economist Shane Oliver told the Finder’s survey.

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“But against this it may decide to wait a bit longer given the decline in headline unemployment reported for December. Given the latter, we lean towards the RBA cutting in March. But it’s a close call and a February cut would not be surprising.”

The next cut will bring the cash rate to 0.50 per cent – just one cut from the point where the RBA would consider instituting a quantitative easing program. However, RBA Governor Philip Lowe has repeatedly sought to dispel concerns that the bank would be forced to use unconventional monetary policy.

“We are expecting progress towards our goals over the next couple of years and the cash rate is still above the level at which we would consider buying government securities,” Mr Lowe told the annual dinner of the Australian Business Economists in November 2019.

RBA expected to hold cash rate in February: Finder
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