Australia's jobs data unlikely to affect interest rate: economists

18:59, July 07, 2010      

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The Reserve Bank of Australia (RBA) is unlikely to be reaching for the interest rate lever if Thursday 's labor force report shows another unexpected drop in the unemployment rate, Australian economists said on Wednesday.

Economists expected Thursday's official labor force report for June will show the jobless rate consolidating at May's level of 5. 2 percent after dropping from 5.4 percent in April. Forecasts center on a 15,000 rise in employment.

"While there has been much chest beating by the government over the steady fall in the jobless rate and strong employment growth, central bank governor Glenn Stevens appears to be taking it in his stride," Australia Associated Press reported on Wednesday.

In Tuesday's statement that followed the Reserve Bank's decision to leave the cash rate unchanged at 4.5 percent for a second month in a row, central bank governor Glenn Stevens appeared to downplay the employment situation, saying the "labor market has continued to firm gradually", Australian Associated Press reported.

There was more emphasis on the growing uncertainty in the global economy, particularly in Europe, while the central bank appears prepared for a strong inflation reading later this month.

Treasurer Wayne Swan reinforced the concerns that were being generated by Europe's debt problems.

"Europe faces a long, slow grind towards recovery with near double-digit unemployment and a big de-leveraging task still ahead, " Swan told the Australian Lebanese Chamber of Commerce on Wednesday.

"The reality of their situation is pretty bleak, but I think they are now really starting to understand the magnitude of their challenges."

Swan said the Australian government was closely monitoring these downside risks and that Australia was not immune to turbulence on global markets.

Macquarie Research senior economist Brian Redican said the economy was at the point that if unemployment did dip below five percent it would probably encounter wage pressures.

But in the meantime, employment outcomes that were being seen now are the result of the decisions made three or four months ago.

Given the lagged effect of monetary policy, it will be a couple of months before the sustained impact from previous interest rates rises are evident.

Redican told Australia Associated Press now was the the time for the central bank "to sit back and take a deep breath".

"I think there is enough to put a red line through August ... and wait for just a couple of months - September or October - before hiking again," he said.

The federal government's leading indicator of employment released on Wednesday suggested there was no clear sign of employment growth accelerating at this stage.

The index, which made up of other forward pointers of jobs growth, such as the Australia and New Zealand Banking Group (ANZ) jobs advertisement series, rose for a third straight month in a row in July.

"It is still too early to confirm that a renewed quickening in the pace of employment growth above its long-term trend rate of 1. 9 percent per annum is in prospect," the employment department said.

The indicator needs six consecutive monthly moves in the same direction to confirm a trend.

The RBA has lifted the official interest rate six times since October, and it left the official cash rate unchanged at 4.5 percent on Tuesday.

Source: Xinhua


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