Australia’s central bank has no plans to change interest rates and appears unlikely to change its stance unless the jobs market improves.
In the minutes of its April 1 board meeting, released on Tuesday, the Reserve Bank of Australia repeated its well worn mantra that “the most prudent course was likely to be a period of stability in interest rates”.
The RBA said that at recent meetings its board members had “noted that the cash rate could remain at its current level for some time if the economy was to evolve broadly as expected”.
Just how long the RBA expects a “period of stability” or “some time” to last is anyone’s guess.
But the best gauge of the RBA’s policy stance is usually the labour market.
When unemployment is rising, the RBA is usually cutting interest rates, and it’s likely to be raising rates when unemployment is falling.
So the RBA’s comment about the labour market is, notwithstanding explicit references to periods of stability and the like, the key passage in the minutes, as far as the outlook for the cash rate is concerned.
“While there had been some tentative evidence of a slight improvement in a number of labour market indicators, conditions would need to improve further before the unemployment rate could be expected to decline,” the RBA said.
That implies that labour market conditions would need to improve further before the cash rate could be expected to be lifted.
Since the April 1 meeting, the official unemployment rate has fallen to 5.8 per cent in March, from 6.1 per cent in February.
But the RBA is likely to be wary of this outcome, given recent volatility in the jobs data related to survey sampling.
Later this year, the RBA may be able to look back over three or four months of data and conclude with some confidence that employment growth has picked up and the unemployment rate has begun to edge down.
Alternatively, there may be signs from surveys of business investment or a sizeable fall in the Australian dollar, that improved labour market conditions are highly likely to emerge in the near future.
If so, then a rate hike – taking the cash rate up from its record low of 2.5 per cent – will be added to the RBA’s agenda.
Until then, the period of stability will continue.
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