MNI INSIGHT: RBA Likely To Cut Again In This Cycle

By Lachlan Colquhoun 

     SYDNEY (MNI) - The Reserve Bank of Australia is likely to cut benchmark

interest rates again in this cycle, and expects job creation to slow in the

short term, taking it further away from the goal of full employment it outlined

on Oct. 1, MNI understands.

     While Labour Force data, due on Oct 17, will provide evidence of the impact

of the RBA's three 25bps cuts over recent months, and give more of an indication

on whether the Bank will move again in 2019, recent signs have been poor.

Despite jobs growth of 2.5% over the last year, the unemployment rate hit 5.3%

in August, with underemployment also rising, to 8.6%, as the participation rate

hit its highest ever level of 66.2%, with older workers and women seeking out

jobs.

     Current forecasts also don't see inflation back into the 2% target range

for at least another two years, from its current 1.6%.

     Seeking faster progress towards its goals, the Bank added a reference to

full employment into its statement when it cut its cash rate by 25 basis points

to a record low 0.75% in October, replacing the earlier objective of "progress

in reducing unemployment." Full employment is a point at which wages growth

should pick up, pushing inflation higher as consumption rises.

     The change in its language came as the Bank finds it harder than expected

to achieve its goals. While the relatively weak Australian dollar, at US$0.67 is

helpful, it is also aware that monetary policy transmission becomes more

difficult as rates fall, with commercial and retail lenders increasingly

reluctant to pass on cuts to borrowers.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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