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Here’s why interest rates aren’t likely to go down next month

Australia’s economy just got another boost as the latest jobs statistics came in. It could mean that the Reserve Bank of Australia (RBA) won’t cut interest rates in February.

What happened?

According to the latest stats released by the Australian Bureau of Statistics (ABS), the total number of people employed rose by 28,900 with full-time employment falling by 300 and part-time employment rising by 29,200. Additionally, unemployment fell by 12,900.

All of this led to the unemployment rate decreasing by 0.1% to 5.1%.

What does this have to do with interest rates?

One of the main jobs of the Reserve Bank of Australia (RBA) is to monitor the economy. The RBA can change the interest rate if the economy needs a boost or it can raise rates if the economy needs cooling down.

The unemployment rate is one of the main things that the RBA looks at. So the fact that it fell means that the RBA might just take a ‘wait and see’ approach. The interest rate is already at record lows, it shouldn’t go lower unless absolutely necessary in my opinion.

We’ve already heard from online retail business Kogan.Com Ltd (ASX: KGN) that growth is slowing. The bushfires in-particular could be having an impact on retailers. Mosaic Brands Ltd (ASX: MOZ) was one to announce that its upcoming result has been materially impacted by bushfires. Whilst employment is an important factor, the bushfires could decide to lower interest rates to support Australians who are doing it tough because of bushfire effects. We’ll see what effects it has had on businesses like Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd (ASX: WES) in this reporting season. 

Foolish takeaway

Lower unemployment is good for the country and good for the ASX’s earnings, even if valuations have been pushed a little lower due to the rate cut in February looking unlikely.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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