The Reserve Bank is responsible for maintaining monetary policy that encourages economic growth and low unemployment while keeping inflation under control.
The RBA uses interest rates to keep these three economic indicators in balance, so in which direction will the RBA move interest rates?
Despite all the current focus on inflation, if unemployment rises and economic growth stalls, the RBA will have no option but to lower interest rates.
This graph shows that apart from the huge jump in unemployment during the COVID-19 pandemic, the employment rate has always risen in January.
This is because large numbers of school and post-school graduates start looking for full-time work at the same time.
Later this year and early next year the unemployment rate, which is currently at 4%, could easily move above the RBA’s comfort zone of 4.5%.
Another cause for concern is that our economy only grew by a meagre 0.1% over the March Quarter.
All RBA eyes will be on the June Quarter figures when they are released on 4th September.
Even if inflation remains high, without any increase in economic growth and with unemployment about to rise, the RBA will be forced to cut interest rates.
What does this mean for the property market?
The pandemic property market boom in 2020 – 22 was driven entirely by interest rate cuts, so any rate cut will see a rise in buyer demand, especially in the lower-priced “cheapie” locations where first-time buyers (who need to borrow most of the purchase price) tend to concentrate.
Clever investors will not just buy in any “cheapie” location, but only in those suburbs where prices are set to boom.
About John Lindeman John Lindeman has well over a decade of experience researching the nature and dynamics of various types of assets at major data analysts and is a leading property market researcher, author and commentator. For more information visit Lindeman Reports.
