As widely expected, the Reserve Bank of Australia has left the official cash rate at an “accommodative” 2.5 per cent citing “on present indications, the most prudent course is likely to be a period of stability in interest rates.”
This now has many calling a bottom to the interest rate cycle.
The statement on today’s monetary policy decision reports, “The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. Growth in wages has declined noticeably.”
“Looking ahead, the Bank expects growth to remain below trend for a time yet and unemployment to rise further before it peaks.”
Roy Morgan today released unemployment figures for January 2014 showing unemployment is now 11.3 per cent, the highest result since January 1995. 1.44 million Australians are now out of work and another 1.105 million are under-employed. Together, this makes up 20 per cent of the workforce.
Since departing from ABS index in 2010, there is a distinct upward trend in the Roy Morgan unemployment figures with no signs of abating.
Yesterday, MacroBusiness published insights from Saul Eslake (‘Eslake: Unemployment much higher than it looks‘) on expectations of continued deteriorating unemployment. Eslake noted, “The RBA has never raised rates while the unemployment rate is rising; indeed, it tends to keep lowering them.
“Further, we argue that given the majority of the decline in participation is of prime working age people, rather than retirees, and therefore it is akin to uncounted unemployment. From this we conclude that the actual unemployment rate is significantly worse than official [ABS] figures suggest. As we continually stress, if the participation rate had remained at the 2009-11 average then the unemployment rate would be 7.1%. The increase in this adjusted unemployment rate has accelerated markedly over the second half of 2013. And it is this that leads us to believe that the RBA may be getting behind the curve on labour market weakness.”
His analysis includes a graph, published in the Macrobusiness article overlaying the official unemployment rate, cash rate and a “participation adjusted” unemployment rate, clearly highlighting his claims the RBA is falling behind the curve on unemployment.
» Statement by Glenn Stevens, Governor: Monetary Policy Decision – Reserve Bank of Australia, 4th February 2014.
» Eslake: Unemployment much higher than it looks – Macrobusiness, 3th February 2014.