Mortgage holders holding out for pre-Christmas interest rate relief have had their hopes dashed following stronger-than-expected jobs data. Commonwealth Bank (CBA) revealed the odds of the Reserve Bank of Australia (RBA) cutting rates in December were becoming “less likely”.
The unemployment rate held steady at 4.1 per cent in September, the latest Australian Bureau of Statistics data revealed. About 64,100 jobs were added to the economy during the month, which was higher than expected, with most jobs being full-time positions.
Gareth Aird, CBA Head of Australian Economics, said the strong jobs figures meant a December interest rate cut was looking “less likely”.
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“Overall, the recent labour market data does not strengthen the case for the RBA to commence normalising the cash rate this calendar year,” Aird said.
“Indeed at the margin it weakens it. That means the conviction we have in our call for a 25 basis point December cut to the cash rate has dipped.”
Despite the setback, Aird said the major bank would continue to “stick” with its December rate cut call for the time being.
The bank’s economic team still believes upcoming data will show inflation falling faster than the RBA anticipates.
“But we acknowledge that the Board will feel less compelled to start the process of normalising the cash rate whilst the labour market data remains robust,” Aird said.
Annual inflation fell to 2.7 per cent, according to the August consumer price index, down from the peak of 8.4 per cent in December 2022.
RBA under ‘less pressure’ to cut rates
Betashares chief economist David Bassanese said the jobs data showed the “remarkable ability” of the Australian economy to “keep finding employment for the still rapidly expanding supply of new workers”.
Bassanese has predicted February to be the start of the interest rate-cutting cycle.
“Today’s employment report does not rule out rate cuts, though it does rule out near-term rate cuts due to an overly weak economy,” he said.
VanEck head of investments Russel Chesler said the strong jobs meant there would be “less pressure on the RBA to bring forward its rate cut timeline”.
“The hot jobs market is preventing inflation from falling much further, as it is keeping services inflation persistently high,” he said.
“The market is pricing in cuts to start by February 2025, but we believe rate cuts will start much later in 2025.”
NAB expects the RBA will start cutting interest rates in February, having brought forward its prediction from May. Westpac and ANZ are also expecting a February cut.
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