No more rate cuts likely yet

The economic data flow so far in 2002 brings closer the prospect that official interest rates have reached their low point with chances of further rate cuts by the Reserve Bank receding.

It’s too soon to call yet, there may still be a need for a further cut in the next few months to help the economy hold up in the face of global downturn.

But hold up it has in recent months despite the US economy’s poor showing. Figures out this month on employment, job vacancies, consumer confidence and housing show resilience continuing up until the end of last year.

On the job front, there was an upturn in job vacancies in December and unemployment stayed steady at 6.7 per cent in November. Although the steady jobless rate masks a continuing fall in both full-time positions and the participation rate, employment appears to be holding up better than was thought.

If the 2.2 per cent lift in the ANZ job vacancies index last month is followed by more positive results then the employment picture may not worsen too much more before turning around later in the year.

Meanwhile, consumer confidence is on the up rising 3.3 per cent in January and follows a strong retail performance at Christmas. While housing approvals look to be on the way down, the strong levels of recent months mean plenty of construction activity for some months to come will help keep the economy bubbling along.

It would be hard for the RBA to lower rates in this scenario given that rates are already at very low levels. The picture may worsen, especially if the expected US recovery does not eventuate in coming months. But for the moment the RBA will likely leave rates steady in February.