RBA, in its June meeting minutes, explicitly noted that the policy rate would be lower. This message came in more dovish than market expectations. The major concern remained in the lackluster improvement in the labor market. RBA cut the bank rate by -25 bps to 1.25% in June. The market has now priced in 50% chance of another rate hike in July.

The key message in the minutes is as follows: “Given the amount of spare capacity in the labour market and the economy more broadly, members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”. The members have paid much attention in the job market. As noted in the minutes, “members agreed that further improvement in the labour market would be required for wages growth and inflation to rise to levels consistent with the medium-term inflation target”.

Since the June meeting, we have received the employment report for May. the numbe of payrolls added +42.3k in May, beating consensus of +16K. Yet, the growth was mainly driven by part-time jobs which rose 39.8K. Full-employment only added +24K. The unemployment rate slipped marginally to 5.19% from 5.22% in April. However, this level remains well above 4.5%, a level RBA judges is required to boost wage growth.

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More rate cuts is highly likely to come in coming months. The next key event would be Governor Lowe’s speech on “The labour market and spare capacity” on Thursday. Hopefully, he would send more hints about the central bank’s next decision.

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