SYDNEY: The biggest expansion of Australian working hours since 1998 may cause job gains to reaccelerate in coming months, forcing the central bank to raise interest rates higher than what Governor Glenn Stevens calls a neutral level.
Aggregate hours worked surged 2.4 per cent in February, according to Statistics Bureau figures released in Sydney. The same report showed job growth moderated to the slowest pace in six months, giving Stevens room to hold off on adding to his four rate increases since October.
Because employers typically add to payrolls after exhausting the scope for lengthening working hours, the job market is poised to strengthen in coming months. As a result, investors lifted their forecasts for the level of the Reserve Bank of Australia's benchmark in 12 months' time.
"With hours worked picking up and the unemployment rate at a low 5.3 per cent, clearly the labour market has improved," said John Horner, a currency strategist at Deutsche Bank in Sydney.
Horner predicts the central bank will increase the benchmark lending rate by one percentage point to 5 per cent this year before adding a similar amount by August 2011.
- BLOOMBERG
Work hour gains could force interest rate hike
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