Property slump consequences eased by strong jobs market

By Kay Rivera | 05 Feb 2019

The property slump is being absorbed by the economy, thanks to decreasing unemployment across the nation, according to a report by Bloomberg.

The Reserve Bank of Australia (RBA) has announced that the economy is in somewhat unfamiliar territory. It has repeatedly said that the current backdrop for the housing slump is a dropping unemployment rate and above-trend economic growth.

This means that the central bank can afford to keep the benchmark rate unchanged at today’s interest rate decision, according to Bloomberg.

At the start of the week, economists and traders still predict that the benchmark rate will stay at a record low 1.5% today, but the possibility of a cut within a year has climbed to nearly 70% in the two months since the central bank’s last board meeting.

“We are not convinced the RBA is on the cusp of a dovish capitulation. Robust labour market outcomes are clearly a significant buffer to any lingering central bank concerns about the impact of falling house prices,” said Sally Auld, senior strategist for interest rates at JPMorgan Chase & Co. in Sydney.

RBA Governor Philip Lowe has so far avoided decreasing interest rates to address weak inflation. Since he took the position more than two years ago, household debt has dropped from a record high—marking the first decline in four years.

The positive results were also felt last year, with the economy moving above its speed limit, unemployment dropping to a more than six-year low, and wage growth improving.

The data is evenly balanced with a robust labour market. As a result, the federal budget is on its way to hitting its first surplus in a decade, implying positive momentum in the economy, according to Bloomberg.

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