Rate cut unlikely as jobless dives below 5 per cent

0
6

THE odds of a June interest rate cut have dramatically weakened following a surprise jump in employment which has pushed Australia’s unemployment rate to 4.9 per cent.

The dive below 5 per cent is in stark contrast to the budget forecasts released on Tuesday which had unemployment climbing to 5.25 per cent by June and then to 5.5 per cent.

“It now looks as though unemployment peaked last August,” said the HSBC economist Paul Bloxham. “The data suggest an improvement in the economy after a soft patch late last year. I expect the Reserve Bank to be on hold for the rest of the year.”

The April jobs figures follow March retail figures on Monday showing a surge in spending since the start of the year.

Stephen Koukoulas, a former adviser to the Prime Minister, Julia Gillard, has been urging a rate cut next month and said the news was a “game changer” for the Reserve Bank.

“Having cut 0.50 points in May, a follow-up 0.25 points in June when there is fresh news showing good growth in employment should see the bank move back to hold, for now at least.

“To be sure, there are still very valid reasons why interest rates are likely to move lower – global economic problems and market ructions. The contraction about to hit the economy from the budget will give the Reserve Bank room. But for now retail sales and employment are so much better than expected that the bank can sit tight.”

The dollar, previously struggling near US100¢, climbed above 101 on the release of the data. The sharemarket climbed 0.48 per cent. Futures traders cut the chance of a June rate cut from 92 to 60 per cent.

The Treasurer, Wayne Swan, embraced the news as “a resounding endorsement of our economy and a resounding endorsement of our jobs record”.

“Australia now has more people in work than ever before, with an unemployment rate of 4.9 per cent,” he told Parliament.

The Employment Minister, Bill Shorten, was more cautious, describing the news as surprisingly good. “But no one from the government is trying to sell some sort of blue-sky scenario,” he said.

”Parts of Australia are doing badly or not doing as well. We also know that unemployment is most likely to increase. We also know that the high dollar has had a big impact.”

The Bureau of Statistics figures show another 15,500 Australians gained jobs in April after 37,600 became employed in March.

Western Australia has accounted for all of Australia’s employment growth during the past year, gaining 47,300 jobs. Changes in the rest of the nation have roughly cancelled each other out. Queensland gained 15,200 jobs while Victoria lost 16,600. NSW has gained 500.

Christopher Joye, a strategic adviser to Yellow Brick Road Funds Management, said last week’s Reserve Bank’s 0.50 point cut could have been ”off the table” had it known about the employment figures and the budget.

[watoday.com.au]