RBA boss gives major rates clue

Perth Now

4 days ago

A tight labour market blocked a rate cut in July, but the RBA boss says Australians won't have to choose between a job and rate relief.
In her speech at the Anika Foundation Fundraising lunch on Thursday, RBA governor Michele Bullock revealed what the central bank will be looking for when it meets in August to discuss the cash rate.
She said the board was not looking for outright mass job losses, but a gradual easing in labour market conditions that has so far been most evident in fewer job vacancies, reductions in hours worked and declining rates of voluntary job switching. RBA governor Michele Bullock explains what the RBA wants to see from the jobs market. Christian Gilles / NewsWire Credit: News Corp Australia
'These shifts aren't without their challenges, but they all tend to be less disruptive than outright job losses,' she said.
Pointing to last week's ABS labour market data, she said the spike in job losses, from 4.1 to 4.3 per cent, was not the silver bullet for future rate cuts that experts forecast.
'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,' she said.
She explained looking only at labour market movements, there were more outright job losses than the RBA had forecast, but other measures such as the vacancy rates were in line with previous central bank predictions.
'More broadly, leading indicators are not pointing to further significant increases in the unemployment rate in the near term,' she said.
Ms Bullock said while the board's remit was to balance employment with price stability, the central bank wasn't necessarily looking for job losses.
'I should note the RBA can't wave a magic wand and control how adjustments in the labour market play out. Interest rates are too blunt an instrument for that.'
'Losing a job can be one of the most stressful events in someone's life, and it can have far-reaching implications for families and communities,' she said.
Ms Bullock's speech reinforces the message from the minutes of the RBA's monetary policy board meeting, released on Wednesday, where the central bank revealed a tight labour market was the key blocker of further rate cuts.
'Recent monthly CPI indicator data – which can be volatile and does not cover all items in the CPI – were broadly consistent with this expectation,' the RBA board said. Ms Bullock warns strong jobs growth can impact inflation. NewsWire / Nicholas Eagar Credit: NewsWire
But with more Australians currently in work, the RBA was wary the strong employment figures could lead to an increase in inflation.
'The labour market was assessed to have remained tight, with measures of labour utilisation little changed over the prior year,' it said.
'Growth in private demand had begun to recover, but was still subdued.'
A cautious RBA monetary board held the official cash rate at 3.85 per cent following its July meeting, with the shock move defying expert commentators and predictions from the money markets.
The board voted 6-3 in favour of the hold.
'A minority of members judged that there was a case to lower the cash rate target at this meeting,' the board said.
'These members placed more weight on downside risks to the economic outlook – stemming from a likely slowing in growth abroad and from the subdued pace of GDP growth in Australia.'
The RBA monetary policy board will next meet on August 12, with money markets widely forecasting a rate cut.