It’s been a big news week for ANZ. (Picture: William West)
ANALYSIS
Could our major banks be unwittingly about to cause a rate cut?
One factor that the RBA monitors closely when considering rate movements is unemployment.
And while the current unemployment rate is steady at 4.2 per cent, revealed with today’s release of the August job figures, this number could soon be much different.
Sean Crick, ABS head of labour statistics, said “employment fell by 5000 people and the number of unemployed fell by 1000 people in August.
“This meant that the unemployment rate remained steady at 4.2 per cent while the participation rate fell by 0.1 percentage points to 66.8 per cent.”
These numbers are no chance of sparking the central bank into action, but a lot has happened since the end of August. Especially in the banking sector.
There has been a raft of job cuts announced by lenders so far in September. First, it was ANZ with about 3500 roles to be cut this month, representing an estimated 14 per cent reduction to its workforce[1], according to Financial Services Union. On top of that, another 1000 contractor roles would be affected.
And because banks like to follow each other’s leads, NAB announced plans to cut 410 jobs, while a Bendigo Bank restructure would affect 637 staff, Bank of Qld is cutting 200 roles and moving half its call centre operations to India. Meanwhile, Westpac is reportedly considering about 1500 redundancies.
Australia’s workforce is at about 14 million people, so 14,000 job losses would be enough to move unemployment up to 4.3 per cent. In September so far, banks alone got us nearly halfway there.
On top of this, BHP Mitsubishi Alliance announced 750 job cuts in Qld, Telstra is planning to add 550 role reductions to its already 2800 cuts this year and Australian biotech company CSL has announced 12,000 global lay-offs, a significant number of which could be in Australia.
Shane Oliver of AMP said it makes sense to continue easing if unemployment creeps up.
If more banks and other major companies follow suit, they might find they shift the unemployment dial far enough to prompt another rate cut.
RBA Governor Michele Bullock has repeatedly emphasised the importance of unemployment figures in shaping cash rate decisions, and while the central bank forecasts a 4.3 per cent unemployment rate through to 2027, a strong increase in that figure would lead to pressure for further, accelerated rate cuts.
Finder’s RBA Cash Rate survey revealed in August that 80 per cent of experts believed unemployment would rise in the next 12 months.
Stella Huangfu, University of Sydney, said “unemployment is likely to edge a bit higher over the next 12 months as the economy continues to slow … perhaps towards the mid‑4s. If the RBA continues to cut rates, that should help put a floor under the jobs market.”
Shane Oliver, AMP, said “the risks to unemployment are shifting to the upside and monetary policy is still tight so it makes sense to continue easing.”
Canstar data insights director Sally Tindall. Picture: Tim Hunter.
The news comes as banks continue to slash their fixed rate products out of cycle, to try to win customer share in a highly competitive market. And because they obviously believe variable rates will continue to fall.
CBA was the latest lender to go below the 5 per cent interest mark[2], with a 4.99 per cent rate for two-year fixed home loans. The move followed Westpac’s announcement of a 4.89 per cent fixed rate product in late August.
Canstar’s data insights director Sally Tindall said there were now more than 30 lenders with at least one fixed rate product under 5 per cent.
“The competition is heating up as banks encourage more borrowers to lock in,” Ms Tindall said. “Smaller lenders are offering rates as low as 4.64 per cent.”
References
- ^ 14 per cent reduction to its workforce (www.realestate.com.au)
- ^ below the 5 per cent interest mark (www.realestate.com.au)