Interest rate move 'may depend on unemployment'

Wednesday 19 January 2011

Article by Mozo

Australian unemployment figures could hold the key to the Reserve Bank's next interest rate decision, it has been suggested.

Interest rate move 'may depend on unemployment'

Commenting on new data showing a fall in unemployment to five per cent, an editorial by the AAP pointed to the pressure to raise interest rates that mounted when joblessness last hit such a low level back in 2005.

"It was a rate that, even a few years earlier, most economists would have associated with a worrying increase in inflationary pressures as labour shortages prompted faster wage rises, lifting the floor under the rate of price rises," it said.

"On the face of it, it signalled some hefty interest rate rises."

However, the AAP noted that in the ensuing year, the RBA only lifted the cash rate by a quarter of a percentage point as other economic trends came into play.

Indeed, the piece served to cast doubt on the notion that interest rates are set to rise soon, noting that while falling unemployment will put pressure on the RBA, the "sluggish economy" and uncertainties caused by the Queensland flooding will likely breed caution at the central bank for the next few months at least.

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