SYDNEY Australia’s jobs market looks healthier than it has in months while house prices are cooling in the face of tighter lending rules, all arguments for steering a steady course on interest rates this week.
The Reserve Bank of Australia (RBA) holds its July policy meeting on Tuesday and is almost certain to keep rates at 1.5 percent, where they have been since August last year.
All eyes will be on the post-meeting statement for any hint of hawkishness given central banks in Europe and Canada had surprised recently by talking of the need for tighter policies.
That change in tune led the futures market to abandon any thought of another easing in Australia and instead imply a one-in-ten chance of a hike in rates by Christmas.
Economists, though, remain much more circumspect and dovish. A Reuters poll of 50 analysts found all but one expected rates to stay steady this week and most saw no move until late 2018.
“In our view the RBA is unlikely to be hawkish given still elevated labor market slack and subdued inflation,” said Tapas Strickland, an economist at NAB.
“Nevertheless, the Statement could well read more positively given May’s stellar labor figures and the market might well infer a hawkish tilt even if it isn’t,” he added.
Employment blew past forecasts to jump 42,000 in May, a third straight month of upbeat outcomes that drove the jobless rate to a four-year trough of 5.5 percent.
Leading indicators of labor demand are also healthy with ANZ’s measure of job advertisements climbing 2.7 percent in June to its highest since 2011.
“We think the strength of employment will be a key factor in stabilizing, and possibly lifting, consumer sentiment,” said David Plank, ANZ’s head of Australian economics. “This will be important in ensuring downside risks to the economy don’t materialize.”
The upbeat tone was echoed by an inaugural series of surveys from CBA and Markit which showed robust activity in both manufacturing and services during June.
The run of improving numbers could lead the RBA to upgrade its view of the labor market, which it has been characterizing as no better than “mixed”.
Yet too cheerful a message could lift the local dollar, which is already at heights considered unhelpful for exports.
“It’s a conundrum for the RBA which wants to avoid a stronger currency,” said NAB’s Strickland. The Aussie stood at $0.7678 on Monday, just off a three-month peak.
There have been some calls for the RBA to tighten policy to head off a debt-driven bubble in the housing market. Instead, regulators chose to crack down on bank lending to investors, pushing up mortgage rates for a range of products.
The tactic seems to be working. Figures from property consultant CoreLogic on Monday showed home prices rose only 0.8 percent in the June quarter, the smallest increase since late 2015, with Sydney recording a notable slowdown.
(Reporting by Wayne Cole; Editing by Shri Navaratnam)