7 May 2015
RBA too confident on employment growth, might cut rates again by December – Capital Economics
FXStreet (Barcelona) - Daniel Martin, Senior Asia Economist at Capital Economics, expects that 2% won’t likely be the floor for rates, and a rising unemployment rate by year-end would cause the RBA to cut rates further to 1.5% by December.
Key Quotes
“Despite the weakness of the April performance, we still wouldn't rule out the Reserve Bank of Australia (RBA) revising its expectation for the peak in the unemployment rate down from 6.5% tomorrow, when it publishes its Statement on Monetary Policy. When making its rate decision on Tuesday the RBA noted that the labour market had performed strongly over the previous six months, and the April data is unlikely to have significantly altered that assessment.”
“Any downward revisions to the central bank's unemployment forecasts will add to speculation that Tuesday's rate cut was the last in the current cycle.”
“Nevertheless, we think the RBA is being too optimistic about the outlook for the economy and, in turn, for employment growth.”
“We still think that the unemployment rate could get close to 7% by the end of the year, and expect the central bank to respond by cutting its policy rate from 2% to 1.5% by December.”
Key Quotes
“Despite the weakness of the April performance, we still wouldn't rule out the Reserve Bank of Australia (RBA) revising its expectation for the peak in the unemployment rate down from 6.5% tomorrow, when it publishes its Statement on Monetary Policy. When making its rate decision on Tuesday the RBA noted that the labour market had performed strongly over the previous six months, and the April data is unlikely to have significantly altered that assessment.”
“Any downward revisions to the central bank's unemployment forecasts will add to speculation that Tuesday's rate cut was the last in the current cycle.”
“Nevertheless, we think the RBA is being too optimistic about the outlook for the economy and, in turn, for employment growth.”
“We still think that the unemployment rate could get close to 7% by the end of the year, and expect the central bank to respond by cutting its policy rate from 2% to 1.5% by December.”