RBA's big challenge with unemployment - Westpac

Bill Evans, an analyst at Westpac, raises concerns over the Reserve Bank of Australia’s (RBA) next policy move, in the wake of the Australian labor market challenges.

Key Quotes:

“The Reserve Bank Board minutes for the July meeting have sent a clear message that the Board plans to pause in its easing cycle at the next meeting in August.

Following the release of the minutes I wrote: the best way to assess the likelihood of a move in August is to compare the wording in the June minutes with the wording in the July minutes.

Furthermore, the minutes do state that “the Board will continue to monitor developments in the labor market closely, and adjust monetary policy if needed”. 

However, there will be considerable interest in the forecasts which the RBA provides in the Statement on Monetary Policy that will be released on August 9 following the Board meeting on August 6.

Whilst these forecasts are not expected to trigger an immediate policy move they will be very important for the policy profile over the next few months.

Trend growth is not sufficient to lower the unemployment rate, challenging the RBA to raise its forecast for the unemployment rate in 2020 to 5.25%. That is a long way from the Governor’s desired 4.5% target.

The vulnerability of the unemployment forecast also requires a very realistic expectation that the RBA will not wait until November to deliver the next move with every meeting after August likely to be very much a live meeting.”