The Reserve Bank is by no means convinced it will have to cut interest rates again but labour market trends could change that in a heartbeat.
The RBA announced on Tuesday that its benchmark for monetary policy, the cash rate, would be kept at 1.5 per cent for another month.
The familiar elements of recent commentary and speeches were there again in the statement issued after its board got together for the regular monetary policy meeting on Tuesday.
The outlook, based on updated forecasts, was “little changed” from the previous forecasting round three months ago.
“Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening,” the RBA said.
There was the guarded confidence that the economy is doing reasonably well, “growing at a moderate rate” and that the inflation rate, currently below the two to three per cent target, would pick up gradually over the coming couple of years.
And there was the acknowledgement that labour market indicators are “mixed” but pointing to “continued expansion in employment”.
But this assessment of the outlook for jobs was restricted to the “near term”.
For economists, that is generally a reference to the coming few months, implying the RBA’s stance is dependent on the labour market continuing to generate jobs, and that the central bank is by no means confident that it will.
There was the reminder that low interest rates are supporting the economy in its transition away from dependence on mining, as well as the warning that a rising exchange rate could “complicate” the transition.
And there was the reference to the housing sector, with tightening lending standards, the looming supply of newly constructed apartments, and rents currently growing at their slowest pace “for some decades”.
By implication, the easing of housing market pressures caused by these factors would allow a rate cut further down the track if the RBA decided it was necessary.
If the housing sector wilted alarmingly enough, it could even help to make the case for a cut if the wider economic impact, in particular the effect on employment growth, was sufficiently severe.
For now, all the signs are that the RBA believes there is a good enough chance that its central forecast will be vindicated, meaning it sees a reasonable probability that the cash rate will not have to be pushed below its current record low.
But its restriction of its outlook for employment growth only to the “near term” means that stance will be dependent on how the month-to-month pace of jobs growth holds up and could easily change.