Keep rates lower for longer: minister

4 Aug 2009, 8:22 am   -   Source: AAP
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The Reserve Bank of Australia meets today to consider interest rates. (Getty Images)

The Reserve Bank of Australia meets today to consider interest rates. (Getty Images)

Ahead of the RBA's monthly meeting today, the government urges the central bank to take rising unemployment into account and keep rates low.

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Interest rates should stay lower for longer to take into account rising unemployment, a Rudd government minister says.

Economists are expecting the Reserve Bank of Australia (RBA) to leave interest rates on hold at a 49-year low of three per cent when it holds its monthly board meeting today.

But the government and financial markets will be watching the accompanying statement for clues on the timing of the next rate increase.

Asked about the central bank meeting, Financial Services Minister Chris Bowen said while interest rates were likely to rise in the medium term, there was a case for keeping them on hold.

"Obviously, everybody would prefer interest rates to stay lower for longer, particularly as unemployment is still an issue," he told Sky News on Monday.
   
A sign that unemployment is still an issue was reinforced by the ANZ Bank's employment survey, which showed newspaper and internet advertisements declined in July for the 15th consecutive month.

But the decline of 1.7 per cent in July was less severe than June's 6.7 per cent tumble.

ANZ head of economics Warren Hogan said the decline in job ads had eased during the past five months, possibly signalling that businesses may cease their recruitment cutbacks in 2010.

"Australian economic activity has been remarkably resilient in recent months, particularly for our largest employer, the retail sector," he said.
   
"Furthermore, the recent rebound in business confidence and conditions suggests that employers may not be as pressed to cut back on labour (and investment) costs."

ANZ has revised down its unemployment forecasts.

It now expects the jobless rate to peak at 7.5 per cent in mid-2010, a figure less dire than Treasury forecasts of an 8.25 per cent jobless rate for the same period.

As recently as May, ANZ was predicting the jobless rate would peak at 8.25 per cent in 2010.

Official labour market data for July is due out on Thursday, with economists expecting unemployment to climb to six per cent, up from 5.8 per cent in June.
   
But the public is getting more optimistic about the labour market, with a quarterly Australian National University (ANU) economic expectations survey, released on Monday, showing more people believe the best days are ahead.
   
Of the 1,200 people surveyed, 568 respondents had a sunny view on the availability of good jobs, compared with 479 doomsayers.

ANU poll leader, Professor Ian McAllister, said this was the first time a larger number of respondents had a more optimistic view on the labour market since the question was first asked in 1998.
   
"This is an interesting and unexpected finding and suggests that in spite of the economic recession, there remains considerable public optimism about the resilience of the economy," Professor McAllister said.
   
In another good sign for the Rudd government, seven out of 10 respondents were satisfied with the way the country was heading.

"Despite the preoccupation with the economy and jobs, the political mood remains positive," Professor McAllister said.

Australia's manufacturing sector is showing signs of recovery, with the Australian Industry Group/PricewaterhouseCoopers performance of manufacturing index rising to a 10-month high in July.
   
The reading of 44.5 points was below the key 50-point level, separating an expansion from a contraction, but the pace of contraction has eased for the third consecutive month.

However, Ai Group chief executive Heather Ridout said while economists were less worried about the labour market, the outlook for employment growth was still weak.
   
"Really, going forward we are going to see higher unemployment, how high it goes remains to be seen," she told ABC Radio on Monday.

"But that will have an impact on confidence, on people's ability and willingness to spend, so definitely I think rising unemployment is a major threat."

 

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