Interest Rates To Stay On Hold

7th August, 2012

Jobs fall but rates to stay on hold

by: David Uren, Economics correspondent
From:The Australian
August 07, 201212:00AM

THE Reserve Bank is braced for a rise in the unemployment rate and will keep its cash rate steady at 3.5 per cent at today’s board meeting in Sydney.

Market economists anticipate the official labour force survey, to be released on Thursday, will show further softening in recruitment. The number of job advertisements in newspapers and posted online has now fallen for four successive months, the ANZ said yesterday.

The ANZ’s monthly survey of job advertisements, released yesterday, shows there was a 0.8 per cent fall in July, bringing to 9.1 per cent the decline since July last year.

Online advertising has been trending lower across the country, including the resource states of Western Australia, Queensland and the Northern Territory.

The Reserve Bank has, like the government, been expecting the jobless rate would rise, calculating the new jobs being generated in the booming mining industry would not be sufficient to offset those being shed in industries like tourism and manufacturing.

The minutes of the bank’s last board meeting said the Australian economy had more momentum than expected and there was no reason to cut rates.

Stronger retail sales, rising house prices, better than expected exports and rising business borrowing — all reported last week — will give the board comfort that there is no need to vary the judgment it made last month.

However, confidence remains fragile. ANZ senior economist Craig Michaels said the level of job advertising was as much a reflection of business confidence as of the underlying trends in the Australian economy.

“Over the last 12 months or so, the number of job advertisements has been moving in line with what is happening in Europe.

“When the euro financial problems flare up; business here loses confidence and demand for workers falls away.”

The latest business survey from the Australian Chamber of Commerce and Industry underlines the loss of confidence, showing that about 20 per cent more companies expect their trading conditions to deteriorate over the course of the September quarter than those who expect an improvement.

More firms are planning to reduce their labour force over the coming three months than are planning to hire more.

One issue facing the Reserve Bank board is the fall of inflation below the bottom of its 2 to 3 per cent target band. The independent monthly survey conducted by TD Securities shows prices rose by only 0.2 per cent in July, despite the impact of carbon tax, which pushed up electricity prices by 14.9 per cent in the month.

The annual rate of price increase is only 1.5 per cent, which is the lowest in almost three years. The higher cost of utilities was offset by falls in the prices of petrol, insurance, and holiday travel.

Related Posts
Interest Rates To Stay On Hold