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Jobs bounce won’t trigger rate hike return: HSBC, ANZ

By Charbel Kadib
4 minute read

Sharper than expected jobs growth won’t mark a return to monetary policy tightening from the Reserve Bank, according to senior economists.   

According to the Australian Bureau of Statistics’ (ABS) latest labour market data, employment numbers increased by approximately 53,000 in March, slowing from a surprise 64,000 spike in February.

However, the monthly result exceeded market expectations of a 20,000 increase, with none of Australia’s major banks projecting an increase above 40,000. 

The number of unemployed persons also declined, falling 0.3 per cent to approximately 509,000.


As a result, the seasonally adjusted unemployment rate remained steady at 3.5 per cent.

This latest labour market data release comes just a week after the Reserve Bank of Australia (RBA) paused its monetary policy tightening cycle after 10 consecutive hikes aimed at curbing inflation.

Labour conditions are among the key economic indicators assessed by the central bank to help inform its policy stance.

As such, the March result is expected to undermine growing expectations of a prolonged pause to the tightening cycle.

But according to Paul Bloxham, chief economist at HSBC Australia, tightness in the labour market is unlikely to prompt further rate hikes from the RBA.

Subdued wages growth within the range of 3-4 per cent, he added, would counterbalance continued improvements in labour market conditions in the RBA’s monetary policy considerations. 

“The somewhat gradual lift in wages growth, despite the tight labour market, is one of the key factors that has allowed the RBA to pause its hiking phase at a cash rate of 3.60 per cent in April,” he said. 

“We expect that today's figures, which show a labour market that is tight, but not tightening further, are unlikely to change that assessment. 

“We expect the RBA's hiking phase to remain paused in coming months.”

ANZ Research agrees: “We don’t think this will be enough for the RBA to return to hiking the cash rate in May, given its reasoning for pausing in April….” 

Following the April monetary policy board meeting, RBA governor Philip Lowe said the board decided to provide “additional time” to assess the impact of 3.5 per cent in cumulative increases to the cash rate since the central bank commenced its tightening cycle in May 2022.

“The board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt,” he said.

Governor Lowe acknowledged global inflation “remains very high”, but said in Australia, the latest data suggests inflation has peaked and growth has slowed.

Michelle Bullock, deputy governor of the RBA, reaffirmed this stance during a panel discussion hosted by the Western Economic Association International (WEAI) in Melbourne on Wednesday (12 April).

Ms Bullock said a rate pause was “always on the cards”, stressing that banking volatility in the US and Europe — headlined by the collapse of Silicon Valley Bank — did not force the RBA’s hand.

“We had already suggested that we were thinking about pausing because we’d moved 350 basis points, 3.5 percentage points, in quick time,” she said.

“…In other tightening cycles, we typically move a bit and then we stop and watch [but] we had to get from emergency low levels, remove all that stimulus and get into restrictive territory.

Other key indicators, including the monthly consumer price index and retail sales data, have also suggested inflation is well passed its peak.

Earlier this week, NAB released findings from its latest Monthly Business Survey, which also revealed an easing in business conditions for the second consecutive month, down 2 index points in March to +16. 

The result was underpinned by weaker employment conditions (down 2 index points) and profitability (down 1 index point), and flat trading conditions. 

Business confidence improved but remained in negative territory (-1 index point), particularly across the retail, wholesale, and finance industries. 

The RBA’s rhetoric, along with the run of disinflationary economic signals, prompted ANZ to revise its monetary policy forecast.

The bank had previously projected a terminal cash rate of 4.1 per cent — pricing in 25 bps hikes in April and May.

However, ANZ now expects the RBA to keep the cash rate on hold at 3.6 per cent until August, when it is tipped to action one final 25 bps hike.

According to ANZ economists, the RBA would keep rates higher for longer, with no monetary policy easing anticipated until November 2024.

Jobs bounce won’t trigger rate hike return: HSBC, ANZ

Sharper than expected jobs growth won’t mark a return to monetary policy tightening from the Reserve Bank, according to senior economists.   

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