End of the line
While the debate has shifted to how many interest rate cuts will be delivered by the Reserve Bank, here's the counter-argument.
The RBA has been explicit that employment matters for its interest rate trajectory.
Growth in the economy and progress towards the inflation target matter too, but the central bank is keen to exhibit patience and to look through one-off factors such as fuel prices, tax cuts, or stock market moves, rather than engaging in fine-tuning.
The RBA has been explicit that employment matters for its interest rate trajectory.
Growth in the economy and progress towards the inflation target matter too, but the central bank is keen to exhibit patience and to look through one-off factors such as fuel prices, tax cuts, or stock market moves, rather than engaging in fine-tuning.
As for the jobs figures?
Well, annual employment growth accelerated last month to a very strong +2.44 per cent, and full-time jobs jumped by more than 48,000 for the month of March.
Although leading indicators such as business surveys and job advertisements have weakened, to date no increase in the trend unemployment rate has been observed.
Well, annual employment growth accelerated last month to a very strong +2.44 per cent, and full-time jobs jumped by more than 48,000 for the month of March.
Although leading indicators such as business surveys and job advertisements have weakened, to date no increase in the trend unemployment rate has been observed.
On that basis alone, the cash rate can and possibly will be left on hold in May.
There may instead be some tweaking of the statement wording to keep the punters happy.
Funding costs crushed
Funding costs crushed
In the meantime, short term funding costs have been crushed in Australia, while the bank bill swap rate has been tracking at around record lows.
Both 3-month and term are where Aussie banks hedge, fund, and borrow, while deposit flows have been huge.
The word on the street from bank economists is that housing finance may have been a little softer in March post-Royal Commission, but mortgage activity and volumes are now beginning to pick up again in April.
And as more banks continue to slash their fixed rates mortgage activity can begin to build up a head of steam, especially as housing market investors rush to beat the 1 January 2020 cut-off for tax benefits, as proposed by Labor.
The housing downturn may thus be over soon.
In the meantime, if inflation is truly flat, as some are arguing, then real wages must have received a timely boost as nominal wages growth rises back to 2½ per cent.
Don't bank on a May rate cut, then.
And a lot can happen over the coming months which means that 1.50 per cent is the bottom for the cash rate.
And a lot can happen over the coming months which means that 1.50 per cent is the bottom for the cash rate.
