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ABC News reporter David Taylor believes the Reserve Bank of Australia (RBA) faces a significant challenge ahead of its February meeting: deciding whether to cut interest rates while the labour market remains surprisingly robust.
Although inflation appears to be easing, Taylor argued that strong job vacancy numbers could complicate the case for a rate cut, leaving borrowers anxiously waiting for relief.
Taylor pointed to trimmed mean inflation as a key indicator of progress, noting that it fell to 3.2% in November from 3.5% in October. This decline suggests inflation is edging closer to the RBA’s target range of 2% to 3%. However, Taylor also highlighted that services inflation remains stubbornly high, with annual increases in rents (6.6%), healthcare (3.9%), and insurance premiums (5.5%) still hitting household budgets.
At the same time, Taylor believes the strength of the labour market adds a layer of complexity. Recent data from the Australian Bureau of Statistics revealed that job vacancies rose 4.2% in November, keeping them 51.3% higher than pre-pandemic levels. While these figures reflect resilience, they also create additional demand in the economy, potentially delaying the conditions needed for rate cuts.
“The concern is that too many Australians are employed,” Taylor said.
The Australian dollar's recent movement underscores how closely the market is watching the RBA’s next steps. Following the inflation report, the currency initially fell to 62.14 US cents before rebounding to 62.33 US cents as traders reassessed the likelihood of a February rate cut. Taylor interpreted this as a sign that confidence in a cut is growing but hinges on further confirmation from key economic data.
Taylor believes the RBA is cautiously optimistic about achieving its inflation targets but warns that upcoming releases, including December’s unemployment figures and quarterly inflation data, will be pivotal.
“At its December meeting, the Reserve Bank indicated inflation was still too high but it was ‘gaining confidence’ it was on track to return to its target band of between 2% and 3%. That word ‘confidence’ is highly subjective. But it has become crucial to the timing of the first RBA interest rate cut,” Taylor said.
Until then, the hurdle remains clear: balancing the need for monetary easing with the risk of fuelling economic demand. The RBA’s decision will ultimately depend on whether the labour market begins to show signs of slowing down.
“All eyes will now be on the release of the unemployment rate for December on January 16, and the December quarter inflation data on January 29. An interest rate cut is agonisingly close for millions of mortgage borrowers, but we're not quite there … yet.”
