Thursday, October 11, 2007

A November rate hike gets more likely by the day...

Australia’s unemployment rate has fallen to a new 33-year low and the ACT’s to its lowest on record, adding to pressure for a mid-election campaign rate rise.

Australia’s unemployment rate fell to 4.2 per cent in September according to figures released by the Bureau of Statistics yesterday, the lowest rate since 1974.

The ACT’s unemployment rate fell below 2.4 per cent in original terms – the first time its done so since records were kept.

At 2.37 per cent, the Territory’s new unemployment rate is by far the lowest in Australia.

In no other state or territory is unemployment below 3 per cent...

Nationally an extra 13,000 Australians found work in September – the eleventh consecutive month in which employment has climbed. There are now 172,000 more Australians employed than there were at the start of the year.

The Prime Minister Mr Howard welcomed the news and said it would not spark an interest rate rise.

“It's not terrible for interest rates,” he said.

“What puts pressure on interest rates is significant rises in inflation over a period of time, and what we have been able to achieve in the last few years is remarkable jobs growth of a non-inflationary kind.”.

The latest inflation figures are due out in 12 days on Wednesday October 24.
They are expected to show that the Reserve Bank’s so-called “trimmed mean” measure of inflation climbed to 0.9 per cent in the September quarter, enough as good as to guarantee an interest rate hike.

Economist John Edwards of the Hong Kong and Shanghai Bank said the jobs news added to the impression that Australian economy was operating at the limit of its capacity and made it almost axiomatic that the Reserve Bank would push up rates if, as expected, the trimmed mean climbed to 0.9 per cent.

“If it is 0.9 they will definitely go; if it’s 0.8 they could go but may not, and if it’s point 0.7 they can skip it if they would prefer not to increase at the November meeting,” he said.

At the bond dealer ICAP senior economist Matthew Johnson said the new generational low in unemployment added to the feeling that the Reserve Bank was edging closer to pushing up rates.

“Every economist is extremely worried about wages pushing inflation up and 4.2 per cent is low - that's a tight labour market,” he said.

“It's not much more complicated than that.”

Futures trading yesterday put the likelihood that the Bank will decide to lift rates at its Melbourne Cup day board meeting at 45 per cent. It put the probability of it doing so in the months that followed at close to 70 per cent.

Asked in August whether he would hesitate to increase interest rates if needed in November in deference to the election campaign that would be under way the Bank’s Governor Glenn Stevens replied: “I don’t think there is any case for the Reserve Bank board to cease doing its work for a month in the month that an election is going to be.”

“Should the inflation data or other data make that case, I feel we have no choice - nor should we have any choice.”

Another hike in Australian interest rates – the tenth successive hike – would lift the standard bank variable mortgage rate to 8.32 per cent, adding a further $70 a month to repayments on a $400,000 loan.