Pressure is mounting on RBA governor Michele Bullock to announce a rate cut in November after the unemployment rate hit its highest level since late 2021. (Source: AAP)
Homeowners could get another interest rate cut from the Reserve Bank (RBA) in just weeks after surprising jobs figures were released. The possibility of one more reduction in the cash rate this year had been slowly fading away, with the majority of the Big Four banks saying the economic data didn’t stack up to a rate cut.
But the Australian Bureau of Statistics (ABS) revealed on Thursday that the unemployment rate lifted 0.3 per cent to 4.5 per cent, the highest it’s been since November 2021. This has renewed pressure on the RBA to cut interest rates, with ACTU president Michele O’Neil saying a reduction would hopefully prevent the jobs rate going even higher.
“The RBA’s charter is clear on its mandate to support the maintenance of full employment. Cutting rates is essential to uphold that charter and protect jobs,” she said.
“The RBA did not forecast the unemployment rate to get this high in the next three years.
“The economy has clearly slowed more than it expected. It needs to cut rates to make sure the economy does not slow further because it held interest rates too high for too long.
“[The] data shows that holding rates at restrictive levels has meant higher unemployment and more pain for working people.”
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The 4.5 per cent reading was far beyond expectation, with some economists believing it would remain steady, while the RBA thought it was only going to rise to 4.3 per cent.
The number of people who found employment rose by 15,000 in September, but there were 34,000 residents who also lost their employment.
The ABS said the number of unemployed males rose by 24,000 to 370,000, while the number of unemployed females rose by 10,000 to 314,000.
In the moments after the data was released, the Aussie dollar plunged 0.5 per cent against the US to 64.85 US cents.
Westpac economist Pat Bustamante fears the unemployment rate could rise to 4.8 per cent by early next year if current trends persist.
Employment minister Amanda Rishworth told ABC Radio National on Friday the highest unemployment rate in nearly four years wasn’t worth losing sleep over when you look at the broader context.
“I would say there are more jobs, there are more jobs but of course, there are also more people, and there’s more people looking for jobs as well,” she said.
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“This unemployment figure is still at historically-low levels. If we look pre-pandemic, just before the pandemic hit, our unemployment rate was 5.2 per cent. It’s about settling into what is normal in our economy.”
NAB senior markets economist Taylor Nugent said the data has increased the possibility of bringing the cash rate from 3.60 per cent to 3.35 per cent.
But the bank hasn’t officially moved its prediction that the next rate cut will be in May 2026.
“[The] outcome clearly makes a November cut a higher probability than would have been the case had [the] number been near our and consensus expectations,” he said.
“We continue to expect a hold as the RBA awaits more clarity on the outlook given the inherent month-to-month volatility.”
Commonwealth Bank’s head of Australian economics, Belinda Allen, added: “Inflation has been a little stronger, consumer spending is rising, but employment growth has slowed more than expected.
“Until the tension between inflation and the labour market is resolved, we expect the RBA to remain cautious.”
But David Scutt, APAC market analyst at StoneX, had a different take. He said it was “game on” for one more 2025 rate cut and pointed to a massive uptick in what the money markets were saying.
Before the ABS data was released, the markets were pricing in a less than 50 per cent chance of a cash rate reduction, but that jumped to more than 80 per cent yesterday.
Scutt also noted that youth employment is above 10 per cent in Australia (and 11.4 per cent for young men), calling it a “canary in the coal mine”
“Markets now have the likelihood of a November rate cut at around 80% (up from around 35% before the job’s report) and around 46bps of cuts priced in over the next year (up from around 34bps),” Westpac Group Senior Economist Pat Bustamante wrote in a note Friday morning.
Fortlake Asset Management co-founder Christian Baylis said the RBA will have a lot to ponder in the coming weeks.
“You’ve got this paradoxical situation where inflation is stickier and higher than what they forecast, and now the labour market is starting to show signs of weakness,” he said.
“That’s going to make it a bit more challenging for them because the consumer is bouncing back. GDP looks stronger than probably what they’re expecting, and now you’ve got this fly in the ointment of the labour market.”
All eyes will now be on the ABS’s quarterly inflation data, which will be released at the end of this month, and could be the deciding factor in whether the RBA has enough information to warrant another cut.
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