Why a Jump in Jobs Doesn't Rule Out an Aussie Rate Cut


A surprise jump in Australia's job numbers in February, the biggest increase in over a decade, had many market watchers close the door on more rate cuts, but one economist says the possibility of easing stays alive.

Alan Oster, chief economist, National Australia Bank (NAB), argues that while more jobs were created last month, the employment rate didn't change indicating that all is not quite well with the economy and a rate cut could be on the cards.

The Reserve Bank of Australia has stayed firm on keeping the interest rate at a record low of 3 percent after making cuts in October and December last year and with jobs soaring by 71,500 in February, far above forecasts, hopes of a rate cut in the near-term were more or less squashed.

(Read more: Australia Employment Soars, Market Gives Up on Rate Cut )

But Oster points to the unemployment rate which stayed at 5.4 percent, despite the rise in jobs.

"Fundamentally, if employment was as strong as that, the unemployment rate should have gone down and it didn't," Oster told CNBC's "Cash Flow" on Friday. "Really, the one that matters more to me is the unemployment rate, which was unchanged."

He added that he's still sticking to his forecast of a rate cut in June and again in November of 50 basis points in total. This is because he doesn't think an overall pickup in the domestic economy is going to be enough to offset a slowdown in the mining sector, even though retail sales jumped above expectations in January and consumer confidence hit a 27-month high for March.

"Consumers are feeling a bit better, house prices are looking better, equity markets are looking better, but unless you get non-mining investment picking up, it's not enough," Oster said.

Economists, along with the Australian government, have predicted that the country's long boom in mining investment will likely crest this year, leading to a slowdown in the sector.

(Read more: Can Australia's Economy Survive the Mining Scare? )

The RBA is "nervous," which is why they have the door open on easing, and while the jobs numbers may have them thinking they don't have to hurry, the rate cuts will happen, said Oster.

"The unemployment rate even at 5.4 percent is ok, but eventually if the unemployment goes north, that's the only angle [rate cut] they've got left," he said. "I have a lot of difficulty seeing employment being maintained at the sort of levels we currently got."

-By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu