Benign jobs market data leaves door open for May rate cut: ABS

In its April monetary policy meeting, the RBA said ongoing tightness within the labour market was still cause for concern.

One risk was “the potential for the tight labour market and strong growth in unit labour costs to have a more pronounced effect on inflation than anticipated,” the board noted.

Seasonally adjusted unemployment increased slightly to 4.1 per cent in March, ABS labour market data released on Thursday showed.

“From an interest rate point of view, this is the perfect set-up for the RBA – lower inflation but the labour market holding up,” AMP economist Diana Mousina said in an update.

“While the unemployment rate remains low, the slowing in wages (and therefore inflation) makes us confident that the strength in the labour market should not deter further rate cuts.”

BDO economics partner Anders Magnusson said the unemployment numbers weren't likely to influence the RBA’s next cash rate decision.

“I think a cut in May is slightly more likely than a hold, but a surprise in the forthcoming quarterly CPI release could change that,” Magnusson said.

Major banks have predicted that the RBA will cut interest rates by 25 basis points in its May meeting. The US-China trade war has raised the risk of a global economic slowdown, tipping the odds further in favour of a rate cut.

The escalating trade war also prompted some commentators to urge the RBA to cut interest rates more aggressively.

“Waiting until nearly the end of May is far too long. The RBA should be nimble enough to realise that the tariffs levied by the USA are an unprecedented move that is already sending shockwaves through the world’s economy,” Greg Jericho, chief economist at The Australia Institute, said shortly after the US ‘liberation day’ tariff announcements on 2 April.

“It should get out in front and cut rates now rather than wait for Australia’s economy to be damaged further.”

However, the impact that the unfolding trade war will have on Australia’s economy remains unclear, other economists have said.

“Our view has not changed since the new US tariff announcements because the impact on Australia is unclear. Exports to the US may slow but they only account for less than 5 per cent of total goods exports,” Mousina said.

“The impact to China from US tariffs may also not be as disastrous as assumed as China seems to be refocusing on its other markets and stimulating its economy,” she added.

“So, there is certainly no need for the RBA to press the panic button right now with a large interest rate cut at the next Board meeting.”