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Rate cuts likely as unemployment rate jumps

What a roller coaster ride for interest rate predictions. Well a rate rise is definitley off the cards now.

Yesterday’s figures showed that jobs growth has stalled, slipping below the rate of population growth, throwing budget forecasts into doubt.

At the same time Westpac-Melbourne Institute inflation expectations declining, a lot of pressure will have been relieved from the RBA regarding interest rate hikes.

The latest jobs figures for July show employment inching ahead a mere 26,000 over the six months since January. By contrast throughout much of 2009 employment was surging at an average pace of 39,000 a month.

Since January, employment has been climbing at an annualised pace of just 0.5 per cent. The May budget forecast employment growth of 1.75 per cent.  The Bureau of Statistics says the population of employable Australians is growing at an annualised rate of 1.24 per cent.

The Aussie dollar has also declined by 9% at its current price of 1.015 from the high of over 1.10. Taking the average daily AUD/USD cross since the end of March, the Aussie dollar is down 5%.

According to the RBA’s research, this is akin to almost a full rate cut, all other things being equal.

Some commentators are suggesting the RBA should cut rates when it next meets in September, while others conclude that the RBA can wait until the next inflation print in late October.

In the meantime a number of banks have lowered there fixed rate interest for home loans.

The bottom line is that there won’t be any interest rate increases for some time and this is great news for all borrowers and the property markets, which are so interest rate sensitive.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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