RBA moves closer to cutting interest rates as unemployment rises

RBA cutting interest rates unemployment rises 2019 Reserve Bank Australia
Rising unemployment in Australia could be the catalyst that sees the RBA lower interest rates from 1.5%.

Australia’s Reserve Bank has probably moved one step closer to cutting official interest rates after the country’s unemployment rate inched upwards.

The national unemployment rate reached its highest point since the middle of last year, hitting 5.2% despite a 28,400 increase in the total number of people with a job through April.

The unemployment rate edged up for the second consecutive month, from a revised 5.1% in March to 5.2%, with total full-time employment down by 6,300 in the month, offset by a 34,700 increase in part-time employment.

Election may have increased part-time work

The big jump in part-time employment could be due to the federal election, as the electoral commission hires staff to work at polling stations.

The latest figures from the Australian Bureau of Statistics now show that the trend measure of unemployment has increased for four consecutive months, which will certainly worry the RBA Board which, in its last monthly decision, said that it would be keeping a very close eye on the unemployment rate.

Australia unemployment rate chart April 2019 seasonally adjusted
Australia’s unemployment rate has creeped back up to 5.2% in April.

However, the RBA could point to more people looking for work as a positive in the figures.

Softening the effect of rising unemployment, the participation rate in the workforce hit a fresh record high of 65.8% in April, meaning there are more people than ever looking for jobs.

These figures also show why wages growth is still so weak.

Under-employment up as unemployment worsens in most states

The ABS also reported a rise in the under-employment rate, which reached 8.5%, up 0.2% on the March result.

Among the states, unemployment was up in NSW (4.5%), Victoria (4.9%), South Australia (6.1%), Western Australia (6.1%) and Tasmania (6.8%).

Queensland headed in the other direction with unemployment falling to 5.9%.

RBA keeping an eagle eye on unemployment

In its decision last week, the RBA board said that the jobless rate needs to fall to 4.5% to push to its 2-3% inflation target band which means even this small rise in unemployment will be seen as pushing the RBA towards an official interest rate cut.

Certainly, the markets seem to think these disappointing figures could lead to a cut in the official interest rate, with the Australian dollar falling when the figures were released from US69.25¢ to US69.08¢.

The dollar also briefly fell below US69¢ — its lowest level in more than three years — on increased anticipation of a rate cut.

Financial markets are also indicating that the chance of an interest rate cut at the RBA’s June meeting is now above 40%.

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