Potential RBA Rate Cut After Job Market Fluctuations
Recent employment data has raised the possibility of the Reserve Bank of Australia (RBA) cutting interest rates in July. Although the unemployment rate remained stable at 4.1%, the country saw a decrease of 2,500 jobs in May compared to April, a stark contrast to the previous month’s robust growth, where 89,000 jobs were added.
KPMG’s chief economist, Brendan Rynne, suggests that the current job market indicators may bolster the case for a 0.25% reduction in the cash rate during the RBA’s early July meeting. He noted, “This positive trend in job growth is likely to reverse soon, particularly as employment expansion in sectors like aged and health care slows.”
Rynne also expressed concerns over the private sector’s ability to withstand potential slowdowns in public sector employment, warning that unemployment rates might significantly rise in the near future. The May job decrease was notably below the expected increase of 25,000 jobs.
Despite the stability of the unemployment rate, it remains beneath the RBA’s forecast of 4.3% for this year. With two interest rate cuts already implemented in 2023, there is growing speculation that further decreases may be essential as government spending contracts and economic growth remains sluggish.
Rynne remarked, “The forthcoming RBA meeting is increasingly pivotal. The existing tightening of cash rates has addressed inflation concerns, yet we might see inflation levels rise again due to ending government rebates and increasing oil markets.”
He urges the RBA to consider these labour force dynamics and proactively reduce the cash rate by 25 basis points to better manage its dual mandate responsibilities.
ASX’s Rate Cut Tracker currently indicates an over 80% probability of a rate cut, with fluctuations noted recently—hitting 89% in early June but then dropping to 78% on June 19. Among the major banks, NAB is the only one forecasting a potential rate cut could materialise post the RBA’s July 7-8 meeting, while Commonwealth Bank, ANZ, and Westpac predict any cuts might occur later in August.
Interest rate predictions suggest two further cuts could occur in 2025 and early 2026 according to CBA and ANZ, whereas NAB anticipates three cuts, and Westpac has increased their outlook to four.
If Westpac’s forecast holds true, borrowers with a $600,000 loan could see monthly repayments drop by almost $350, an outcome that would significantly ease the financial burden on households. However, it is crucial for borrowers to remember that these forecasts are not guarantees.
Economist Stephen Koukoulas, a contributor to Yahoo Finance, remains steadfast in his expectation of a July rate cut, citing that, while the unemployment rate has stabilised, other concerning factors are likely to compel the RBA to act. He noted that broader economic conditions remain subdued, with external pressures and global geopolitical issues further straining the Australian economy.
In conclusion, as employment trends evolve and economic conditions continue to fluctuate, the RBA’s upcoming decisions will be instrumental in steering the mortgage landscape and potentially alleviating financial pressures on Australians.
