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Australia's unemployment rates are low, which could have big implications for the Reserve Bank of Australia's next decision on cash rates.
The most recent unemployment stats fell to 3.9% in November 2024, down from 4.1% the month before, and higher than the RBA's anticipated rate of 4.3%.
That's good news for job seekers. But market commentators were quick to conclude that the nation's low unemployment rates would likely delay cuts until the fall.
"The low unemployment rate and higher earnings really do highlight the case that we have a resilient labor market. And that's unlikely to shift anytime soon," Madeline Dunk (pictured), an economist at ANZ in Sydney, told Australian Broker.
Australia's high-for-longer cash rate has been on hold at 4.35% since November 2023.
"It's quite a different cycle than we've been in before, because there haven't been a lot of job losses. That's normally when the RBA cuts rates," Dunk said. "Right now, households are in a good position. They're keeping up with repayments and people saved a lot during the pandemic. And some people have shifted to higher paying jobs. They're able to manage this higher-cost-of-living crisis."
Still, the economist is among the hopeful who are anticipating a cash cut during the RBA's Feb. 17-18 meeting. While her firm had previously said rate cuts would likely come in May, ANZ recently updated its forecast to February 2024. The expectation is that the RBA will cut the cash rates by 25 basis points, bringing the new rate to 4.10%.
Among Australia’s other big four banks, opinions are mixed over the RBA’s next move. While ANZ and Commonwealth Bank are anticipating a reduction in rates during February's meeting, Westpac and NAB are placing their bets on May 2025.
Still, others are doubtful that rates will be slash even as soon as May.
"If the unemployment rate holds, then we might not have an interest rate cut in May. We could go all 2025 without a rate cut," said Darren Coff, managing director at Investure.
The biggest deciding factor, Dunk said, will be inflation rates.
The RBA has previously said it is targeting an inflation rate between 2% and 3% before it will cut rates. But the numbers are mixed.
The most recent data from Australian Bureau of Statistics' Consumer Price Index (CPI) — which measures monthly price changes — showed a rate of 2.3% for the 12 months leading up to November 2024, up from 2.1% the month before and within the RBA's target range. Although Dunk said the monthly reports don't hold as much weight as the quarterly reports. The CPI's third quarter results, for the period ending September 2024, were 2.8%.
Meanwhile, the "trimmed mean," or underlying inflation, fell to 3.2% in November, down from 3.5% the month before. While the numbers are not within the RBA's preferred range, they are signs that inflation is cooling.
"It all comes down to the Q4 inflation numbers," Dunk said.
The Australian Bureau of Statistics will release its fourth quarter CPI results on Jan. 29.
Dunk said brokers will need to brace themselves for a challenging environment, at least in the near term.
"Until rates come down, it's going to be a soggy first half," she said, adding that even when rates are reduced it will be modest.
"There will be some relief. But it won't shift the dial too much for households," she said.
