The Reserve Bank of Australia (RBA) is expected to stay on hold in 2019 and 2020 on hopes of a stability in the labour market, after the ANZ Labour Market Indicator (LMI) pointed towards the same, despite leading indicators painting a bearish picture on unemployment, according to a latest report from ANZ Research.
A loss of economic momentum has seen the market shift to price a rate cut over the coming year. The soft GDP prints for the second half of 2018 have been a major reason for this shift, though not the only one.
GDP outcomes have historically been a poor guide to RBA action. What has mattered is the trend in the unemployment rate and surprises on inflation. A period of low GDP growth has not necessarily translated into higher unemployment and an RBA easing, the report added.
Indeed, with interest rates at record lows fiscal policy is a better option to stimulate the economy than yet more monetary easing.
The April Budget is further expected to be stimulatory, with both larger personal income tax cuts and more spending likely to be announced. A budget along these lines would go a long way to lessening concerns about growth in 2019 and 2020.
Previous concerns about the RBA’s financial stability objective have been dealt with by other means, such as the regulatory induced tightening in credit availability, even if this has also been a primary driver of housing market weakness.
"Should it look as if the unemployment rate is trending higher, we think the RBA will act quite quickly. We see an easing as early as May as a possibility if we get weak labour force data and a rollover of ABS job vacancies. If we get past May then we think the next opportunity for a cut shifts to August," ANZ Research further commented.