The Reserve Bank of Australia is expected to take its foot off the gas when it next meets to decide the cash rate, providing some breathing room for debt-saddled borrowers facing higher mortgage repayments and living costs.
It’s been a challenging year for borrowers, with rising inflation and elevated cost of living concerns having resulted in three rate hikes since February.
But new jobs data released this week could force the RBA to pause any further rate hikes - at least for a while.
New data from the Australian Bureau of Statistics (ABS) on Thursday showed there were 19,000 fewer people employed in April, with the number of unemployed rising to 33,000.
It pushes the national unemployment rate to 4.5% in April, up from 4.3% in March and higher than the plateau markets were expecting.
Unemployment rate:
Source: Australian Bureau of Statistics
It is the highest the unemployment rate has since 2021, though the unemployment peak is not expected until well into next year.
Economists at all of the big four banks now expect rates will remain on hold until at least August, with National Australia Bank on Thursday revising its expectations to align with CBA, ANZ and Westpac in its view that the RBA will not tinker with interest rates next month.
“This data can be volatile month to month, but this is a soft print, and one that challenges the RBA’s judgement of labour market resilience,” NAB senior economist Taylor Nugent said in a note.
“4.5% is a new cycle high and contrasts the RBA’s statement on monetary policy forecast for an unemployment rate averaging 4.2% in Q2 before ending the year at 4.3%.”
Surpisingly high unemployment data means NAB is now expecting a rate hold in June. Picture: Getty
Commonwealth Bank senior economist Trent Saunders said it was also “too early” to tell whether the higher unemployment rate reflects a long-term trend.
“But [the] data is a reminder that conditions are no longer tightening,” he warned. “We expect the unemployment rate to rise from here as economic growth in Australia slows.”
A weaker labour market is likely to push the RBA to take stock on its tightening cycle, with its dual mandate remit ensuring it must consider its full employment objective in line with maintaining price stability by way of inflation control.
In the minutes from its May rate decision, the central bank said its third consecutive hike would now give “space to see how the conflict in the Middle East develops and Australian households and businesses respond”.
The RBA expects inflation to peak next month. Picture: Getty
The bank also flagged “some tension” between the central bank’s predictions for the labour market and how it balances its dual mandate objectives.
“There is now less urgency for the RBA board to lean more firmly against inflation risks, and the balance of risks has shifted in favour of the board’s characterisation that they have some space to monitor incoming data for both inflation and activity impacts due to higher oil prices and uncertainty coming out of the Middle East,” it added.
As the bank grapples with rising inflation in Australia, both the public and the government have been in the firing line.
RBA governor Michele Bullock has consistently said spending is weighing on the economy. Picture: David Gray
The bank has pointed the finger at consumption levels throughout 2026, communicating frequently that aggregate demand was weighing on inflation even before conflict in the Middle East began at the end of February.
Reserve Bank assistant governor Sarah Hunter this week said the hard line the board has taken with continuing to increase rates was already making matters worse for the housing market, with national home prices having fallen last month for the first time since late 2024.
The Consumer Price Index hit a near three-year high of 4.6% of March, with higher costs for housing, transport and food propelling consumer spending after fuel prices rose a record 32.8% in just one month.
Both the bank and the Treasury are still expecting headline inflation to peak in June, when the effects of the Iran War have flowed through more fully into the domestic economy.
Figures for April will be published next week, though the nation’s largest lender, CBA, is already anticipating the worst may be over.
“We expect annual headline inflation to ease to 4.3% in April, as lower fuel prices weigh on the monthly outcome,” Mr Saunders said. “The temporary fuel excise reduction will be a key driver of the decline in fuel prices.”
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