Interest rates on hold

In a decision that will surprise no one, the Reserve Bank board has at its April meeting kept the cash rate unchanged at 1.5 per cent.

But a slowing economy means it's likely the RBA will cut the cash rate this year, with a growing possibility of two 25 basis point cuts.

Despite guidance from the RBA governor that a rate cut is now more likely, the RBA did not substantially change the key language around the future path of interest rates.

The RBA will be keenly examining the federal budget and the opposition's budget reply for any economic stimulus, which is likely to be in the form of personal income tax cuts or cash handouts.

If the stimulus is significant, it will provide a boost to household spending and economic activity and reduce the likelihood of, or at least delay, an interest rate cut.

According to financial market forecasts, and a growing number of economists, two 25 basis point cuts are expected by early 2020.

The shining light for the RBA is the low unemployment rate, which fell to 4.9 per cent in February, its lowest level since 2011.

The under-employment rate, which measures the share of people working part-time who would like more hours, has also fallen over the past year from 8.5 per cent to 8.1 per cent.

The RBA stated that the "labour market remains strong", but removed the sentence, "[a] further decline in the unemployment rate to 43/4 per cent is expected".

This suggests the RBA will raise its unemployment rate forecast in May.

Rising job vacancies, which measure of the demand for workers and can indicate future movements in the unemployment rate, point to continued low unemployment.

Job vacancies increased to 245,000 in February (in trend terms), up from 186,000 in February 2017.

Although job vacancies are increasing, the rate of increase is slowing. Job vacancies (expressed as a share of the workforce) are highest in NSW, Western Australia and Victoria (see graph).

Job vacancies growth has slowed in Victoria over the past year, but vacancies are growing strongly in NSW, as well as in Western Australia.

But not all leading indicators of employment are as encouraging, suggesting unemployment may rise in the year ahead.

Job advertisements have fallen by about 4 per cent since this time in 2018 and internet job vacancies are down 2.5 per cent over the year.

Westpac's unemployment expectations index has jumped in 2019 and the Department of Jobs and Small Business' Leading Indicator of Employment has also fallen over the past year.

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Reserve Bank leaves interest rates on hold at 1.5 per cent but cut likely this year.

Reserve Bank leaves interest rates on hold at 1.5 per cent but cut likely this year.