A key concern among some economists has been strong jobs growth, with the country adding 400,000 jobs over the past 12 months. November’s unemployment rate, which was released after the RBA’s meeting, fell to 3.9 per cent.
Documents obtained by this masthead under freedom of information showed that within the bank, staff believed the jobs market was only “gradually” softening to the point at which the unemployment rate was unlikely to be adding to inflationary pressures.
Many of the new jobs have been created in the so-called “non-market sector” which are areas with heavy government regulation or presence, such as health, aged care and social services.
But the minutes show the bank is more concerned that the absence of jobs being created in the private sector could be a harbinger of more pressing problems.
“Given the weakness in private demand and the slow pace of job creation in the market sector, members were alert to the risk that the unemployment rate could increase by more than expected if labour demand in the non-market sector were to slow abruptly,” the minutes showed.
The RBA board next meets in mid-February, soon after key measures of monthly and quarterly inflation are due to be released by the Australian Bureau of Statistics.
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Some economists are already tipping inflation in the December quarter will come in under the RBA’s own forecasts, prompting expectations of a rate cut at the February meeting.
The minutes show the bank believes there is a risk the December inflation report will be softer than expected, due in part to a small easing in rents and the cost of building new homes.
J.P. Morgan economist Ben Jarman said the minutes “suggest a cut is coming into frame”.
He said softer news on inflation, wages, economic growth and household consumption all meant the chances of a rate cut at the bank’s February meeting were on the rise.
Jarman, who expects the bank to move in February, noted the minutes showed the board had opted to leave the cash rate steady “at this meeting”, a term it had used on previous occasions just ahead of a rate cut.
A quarter percentage point would save a person with a $600,000 mortgage about $100 on their monthly repayments.
AMP chief economist Shane Oliver said the February meeting was now “live”, noting that if upcoming figures such as inflation were in line or below the RBA’s expectations then it would consider a rate cut.
A rate cut in mid-February would enable Albanese, whose term as prime minister has been dominated by cost-of-living issues, to call an election for late March or early April.
Justin Fabo from Antipodean Macro said the commentary in the minutes suggested the chance of an earlier-than-expected rate cut.
“We have a cash rate cut pencilled in for mid-2025. The dovish tone of recent RBA communications feel like the risks are skewed to an earlier kick-off to policy easing,” he said.
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