The latest jobless figures have prompted CBA to reconsider its forecast for rate cuts. While it remains the last major bank predicting a February cut, it acknowledged on Thursday that the data has cast doubt on its projection.
The unemployment rate ticked down 0.2 ppts to 3.9 per cent due to a fall in the participation rate and surprised the market which had widely predicted a rate of 4.2 per cent.
The Australian Bureau of Statistics reported that employment rose by 36,000 people and the number of unemployed decreased by 27,000 people, pushing the rate down.
Responding to the print, CBA’s Gareth Aird said that taken at face value, the data indicates that the labour market is not loosening despite well below-trend gross domestic product growth.
But Aird opined that “Australia should be able to run an unemployment rate of approximately 4 per cent and see inflation within the target band sustainably”.
As such, he said: “We stick with our call for the RBA to commence normalising the cash rate in February. But clearly that call is in doubt following the labour force report today.
“It will almost certainly require a Q4 24 trimmed mean CPI of 0.6 per cent/quarter or less for the RBA to cut the cash rate in February. And the labour market will need to show signs of loosening in December.”
VanEck’s head of investments and capital markets, Russel Chesler, had a less optimistic view, noting that the data released on Thursday has significantly reduced the chance of an RBA rate cut any time soon.
“The RBA is expecting the labour market to loosen quite a bit more as we hit the home stretch of the current tightening cycle, with the quarterly unemployment rate increasing by 40 basis points to 4.5 per cent and remaining there until the end of 2026,” Chesler said.
“This time last month, the market was forecasting the first rate cut to be in August 2025. Many analysts have since pulled forward their forecasts to February or May 2025, however provided the labour market remains as strong as it has been in the last year and a half and there are no exogenous shocks in the interim, we maintain our long-held position that the first rate cut will be later in 2025.”
ANZ stuck to its guns on Thursday, reaffirming May as the most likely month for a cut.
“Softer economic data from the recent national accounts release raised the risk of a February cut, but this labour market result offsets that risk somewhat,” the big four bank said.
“Our preferred measure of labour market tightness (FTE-pop) remains at levels consistent with inflation, ultimately returning to the RBA’s 2‒3 per cent target band.”
AMP’s My Bui said the jobs print proves the labour market in Australia is still very resilient, despite an extended period of restrictive rates.
“Overall, today’s jobs figures, on their own, favour a later start to the RBA cutting cycle because a tighter labour market makes it harder for labour cost and services inflation to come down,” Bui said.
She, however, noted that soft household consumption, overall cooling inflation pressures, as well as “other cracks” in the labour market, mean that there is a “high” chance of an earlier cut in February.
“Either way, we see rates coming down to 3.6 per cent by the end of 2025.”
