Rates unlikely to be cut further

Rates unlikely to be cut further

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The Reserve Bank (RBA) is unlikely to cut rates next month, after the Australian labour market posted better than expected results.

According to data from the Australian Bureau of Statistics, jobs rose by 1,000, while the unemployment rate edged down to 5.5 per cent from a revised 5.6 per cent.

Speaking about the results, HSBC chief economist Paul Bloxham said while Australia's labour market was flat in May, the data have been volatile recently, which makes interpretation difficult.

"We can, however, look at the trend numbers to get an underlying picture of the labour market. Trend employment rose by 9,000 in the month, while the trend unemployment rate hovered around 5.6 per cent," he said.

"Overall, the trend figures suggest modest growth in jobs and a steadying unemployment rate since the beginning of the year.

"However, with the unemployment rate holding up at 5.5 per cent, the labour market remains some way off full employment. As such, there is likely to be limited pressure on wages and more general inflation stemming from the labour market at the moment.

"Consistent with this, we continue to expect the RBA could cut rates a little further in coming months, in order to support domestic activity. Given the recent sharp depreciation in the Australian dollar, however, the RBA could also feel that financial conditions have been loosened sufficiently for the moment.

"We are of the view that the easing phase of the RBA's cycle is near its end, but perhaps not quite there. Much depends on where the Australian dollar settles, given its big move in the past couple of months. Today's report is encouragement for the RBA to hold steady until Q3."

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