SYDNEY (Reuters) -Australia’s top central banker said on Thursday a measured and gradual approach to monetary policy easing was appropriate as the labour market had only eased slightly, shrugging off concerns about a recent jump in the unemployment rate.
Speaking on inflation and employment, Reserve Bank of Australia Governor Michele Bullock said a rise in the jobless rate to 4.3% in June from 4.1% was not a “shock”, adding that the labour market was slowing in line with forecasts.
“Other measures – such as the vacancy rate – have been stable recently. More broadly, leading indicators are not pointing to further significant increases in the unemployment rate in the near term,” Bullock said.
Bullock said much of the rebalancing in the labour market over recent years has occurred in declines in job vacancies, hours worked and voluntary job switching, which is less disruptive than people losing jobs.
“Because the labour market can adjust in different ways, we do not ‘target’ any one adjustment mechanism, such as a set number of job losses, as we seek to bring demand and supply back into balance.”
The central bank stunned markets earlier this month by leaving interest rates at 3.85% when a quarter-point cut had been widely expected. In a rare split decision, the RBA board decided to wait for more data on jobs and inflation before deciding whether to move in August.
Since then, figures have shown unemployment unexpectedly spiked to a 3-1/2-year high of 4.3% in June, leading markets to almost fully price in an August easing.
Bullock reiterated that there was a risk that second quarter inflation data might come in a bit stronger than expected and the central bank continued to assess that a measured and gradual approach to monetary policy easing was appropriate.
Core inflation slowed to 2.9% in the first quarter, down from a peak of 6.8% and back within the RBA’s target band of 2% to 3%. Data due next week is expected to show a further cooling to around 2.7%.
“Our longstanding strategy has been to bring inflation back to target while preserving as many of the gains in the labour market as possible,” Bullock said.
“This approach meant that interest rates in Australia did not rise as high as they did in some other economies, and so we may not need to lower them as much on the way down.”
(Reporting by Stella Qiu and Wayne Cole; Editing by Jacqueline Wong)
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