Employment up: Rate rise likely for Australia before year-end, says HSBC

SYDNEY – With the Australian unemployment rate falling to 5.8% in March (market expectation 6.1%) to its lowest level since November last year, HSBC says the next move in interest rates in Australia will be upwards – probably before the end of this year. HSBC says the main message from today’s data is that the labour market is stabilising and the unemployment rate may now have passed its peak.

“If these trends in the labour market continue, as we expect they will, the RBA may soon have little motivation to leave its cash rate at its current historical low of 2.50%,” says Paul Bloxham, HSBC’s Chief Economist for Australia/New Zealand.

“With activity lifting, the housing market continuing to boom and the labour market now seemingly past its trough, the RBA may soon need to consider shifting to a tightening bias, in preparation for lifting interest rates back towards neutral.”

But Bloxham adds that the RBA may face another challenge. “Recent improvement in local economic conditions has also seen the AUD rally back to around US94 cents, despite recent weaker conditions in China,” he says. “If the AUD were to appreciate further, this could put downward pressure on inflation and the delay the need for the RBA to lift interest rates.”  www.hsbc.com.au (ATI).