Jobless rate will climb further, warns RBA’s John Edwards

UNEMPLOYMENT has further to rise as growth remains well below levels needed to drive the rate lower, says RBA board member.

AUSTRALIA’S unemployment has further to rise as economic growth remains well below levels needed to drive the jobless rate lower, John Edwards, a member of the Reserve Bank of Australia’s interest-rate setting board, said day.

“We’ve still got a rapid rate of growth of the workforce and GDP growth is just not quick enough to keep up with it. There is no doubt at this rate of 2.5 per cent, it is below the rate that is necessary to prevent a rise in unemployment,” Mr Edwards said in an interview.

“We’ve got to get to 3 per cent (GDP growth) at least,” Mr. Edwards said.

Unemployment jumped to a near 13-year high in January of 6.4 per cent from 6.1 per cent, according to government data.

The RBA surprised financial markets yesterday by keeping its cash rate steady at a record low of 2.25 per cent, citing worries about the pace of house price growth. Most economists expected a cut.

“I think that yesterday’s statement made it pretty clear that house price growth, particularly house price growth in Sydney ... is a cause for concern. The last thing you want to see is monetary policy having a stimulatory effect in driving up house prices,” Mr Edwards said.

Record low interest rates drove a 14 per cent rise in Sydney house prices in the year through to February.

Mr Edwards said that was too fast. Still, time is needed to see if recent regulation changes to curb record lending for property investment and foreign buying of houses have the desired effect in cooling the market.

The comments follow data earlier today showing the economy continued to grow slowly in the fourth quarter of 2014 as a mining investment downturn and crumbling commodity prices erode business confidence.

The economy grew by 0.5 per cent in the fourth quarter from the previous three months. Gross domestic product also rose by 2.5 per cent from a year earlier. Economists had anticipated growth of 0.5 per cent and 2.4 per cent, respectively.

Treasurer Joe Hockey also has some latitude in shaping the government’s 2015-16 budget, which he will announce in May.

With economic growth weak, however, “It is not a good time to be trying to get a big contraction in the budget in the space of one year,” Mr Edwards said.