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More rate cuts expected as unemployment rises

Shane Oliver
By Sarah Kendell
19 September 2019 — 1 minute read

Economists and fund managers are tipping further interest rate cuts from the Reserve Bank before Christmas after Australia’s unemployment rate rose to 5.3 per cent on Thursday.

The latest Australian Bureau of Statistics figures revealed a jump in unemployment to 5.3 per cent in August, up from 5.2 per cent in July. While over 34,000 jobs were added to the economy over the month, this was offset by a rise in the workforce participation rate to 66.2 per cent.

The new figures represent the highest unemployment rate in the nation since July 2018, and place Australia just outside the top 10 highest unemployment rates globally.

As a result, economists and fund managers are revising their forecasts and many now expect a further interest rate cut at the RBA’s next board meeting.

In a Twitter post on Thursday, AMP Capital chief economist Shane Oliver said the central bank would not be happy with the outlook for wage growth off the back of the latest figures, with jobs growth centred around part-time roles and underemployment having also risen by 0.2 of a percentage point.

“[It’s] hard to see wages picking up with this,” Mr Oliver said. “[This] leaves the RBA on track to cut to 0.5 [of a percentage point] by year-end, with [a] high chance the next move is next month.”

Daintree Capital director Justin Tyler agreed that following falls in business confidence and a softening labour market, the central bank had further to go when it came to loosening monetary policy.

“We remain of the view that the RBA will cut rates at least to 0.75 per cent before the current rate cycle finds a floor,” Mr Tyler said.

Westpac chief economist Bill Evans and Commonwealth Bank senior economist Gareth Aird had also updated their interest rate forecast, expecting the RBA to cut rates again in October.


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