Cash-strapped mortgage holders eye cash relief as jobless rate rises

Cash-strapped mortgage holders are “more likely” to get an interest-rate cut in November, as the number of Aussies out of work balloons.

In his latest update, Westpac senior associate economics Ryan Wells says falling unemployment adds to the case for a November interest rate cut.

“Compared to the RBA’s forecast from August, employment growth is already on weaker footing and the unemployment rate looks like it will overshoot projects,” Mr Wells said.

“This lends weight to our view that there’s a good chance that the RBA will cut rates in November but ultimately the key factor will be the Q3 inflation report due October 29.”

The other three major banks – Commonwealth Bank, NAB and ANZ – are currently calling the RBA will hold the cash rate in November.

AMP chief economist Shane Oliver agrees, saying while monthly data runs hot and cold, the monthly figures suggest the economy is “still a bit fragile”.

“This has included further falls in consumer confidence and home building approvals, weaker than expected household spending data and now another rise in the unemployment rate,” he said.

“Unemployment remains in a clear rising trend, it’s above the RBA’s forecasts and at 4.5 per cent it’s now in line with the RBA’s estimates of full employment.”

Dr Oliver said if unemployment continued to rise it would “arguably be violating the RBA’s full employment objective”.

“Of course, the rise in unemployment may just reflect the lagged impact of weak economic growth last year, but it may also reflect a messy handover from the public sector to the private sector as the key driver of jobs and in any case slowing job openings are pointing to a high risk of a further rise in unemployment,” he said.

Dr Oliver is calling the central bank to cut rates in November and February by a total of 50 basis points, bringing the cash rate down from 3.65 to 3.10 per cent.

The two economists cite weaker job figures adding to a case for a rate cut as the Australian Bureau of Statistics confirms the number of Australians out of work has reached a four year high.

Official stats released on Thursday showed unemployment jumped to 4.5 per cent, with the jobs market deteriorating faster than the RBA predicted.

It followed 34,000 Australians losing their jobs in September, while the number of people who gained work was 15,000.

Australia's Cash Rate 2022

This was largely due to the participation rate jumping to 67 per cent, meaning the number of jobs created did not match the number of potential employees.

The participation rate is now just below a record high of 67.2 per cent.

Prior to the jobs data being released, RBA governor Michele Bullock said recent monthly data had showed inflation was rising and the jobs market remained tight.

Although she added the caveat by saying the central bank puts more stock in quarterly inflation figures.

“Most recent data suggested that there were a couple of elements, in particular housing dwelling/building costs and market services inflation, that looked a little stronger than we’d been expecting,” Ms Bullock said.

“So those two things together, activity looking a little stronger, the labour market still judged possibly a little tight, it’s a bit uncertain but possibly and inflation looking like there might be some elements there, so those sorts of things are at the back of our mind.”