The Reserve Bank has warned the unemployment rate could still rise despite a recent unexpected fall, while presenting four policy options the central bank has available should the economy need a further lift.
Deputy central bank governor Guy Debelle says while the fall in the unemployment rate to 6.8 per cent in August was unforeseen, the recovery in the labour market was likely to be “bumpy and uneven”.
“We still expect the unemployment rate to rise from here,” he told the Australian Industry Group on Tuesday.
His comments came as new data on Tuesday showed payroll jobs fell 0.7 per cent for the month ending September 5.
The Australian Bureau of Statistics said over this period jobs fell by 2.1 per cent in locked-down Victoria and by 0.2 per cent over the rest of the economy.
Payroll jobs remain around 4.5 per cent lower than mid-March and at the start of the pandemic – 8.3 per cent down in Victoria and 3.1 per cent in the rest of Australia.
Even so, Mr Debelle said the economy had come off a trough seen in May, at the height of the coronavirus pandemic.
“So it is plausible that the worst is behind us but the recovery from here is potentially more of a slow grind,” he said.
But he again said interest rates are unlikely to rise over the next three years, and presented four options that are at the Reserve Bank’s disposal should the economy need a further lift.
These are extending its bond buying program to longer maturing issues, foreign exchange intervention and negative interest rates.
Another option is to the lower the current structure of interest rates in the economy, both in terms of the target for government bond yields and the borrowing rate the RBA offers to banks from the current 0.25 per cent.
“It is possible to further reduce these interest rates,” he said in his speech.
But he emphasised these were all just options.
“I am not saying anything new on the likelihood of any of those,” he said in a subsequent Q&A session.
There has been speculation the central bank could ease the cash rate from its already record low of 0.25 per cent to 0.10 per cent.
Interest rate futures imply a 0.10 per cent cash rate by the end of the year.
RBC Capital Markets head of strategy Su-Lin Ong has long argued negative rates should be an option in the Reserve Bank’s toolkit.
“By continuing to highlight other policy measures without committing to any timelines, especially ahead of the upcoming 2020/21 Commonwealth Budget, the RBA is employing maximum flexibility,” she said.
“In these uncertain times, that would appear prudent.”
Meanwhile, consumer confidence has risen for a third straight week, with Victorians notably more upbeat that the coronavirus outbreak in the state is being brought under control.
The ANZ-Morgan consumer confidence index – a pointer to future retail spending – rose 1.2 per cent and to its highest level in three months.
ANZ head of Australian economic David Plank said there was an improvement in confidence in Melbourne and the rest of Victoria.
“The success in getting the COVID-19 new case numbers down is clearly having a big impact on confidence in Victoria,” he said.
Melbourne consumers are now a touch more confident than those in Sydney.