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Financial markets have priced in around a 70 per cent chance of a November rate cut following weaker-than-expected employment data.
The unemployment rate rose from 4.3 per cent to 4.5 per cent in September, according to data from the Australian Bureau of Statistics, climbing to its highest level since the COVID-19 pandemic in 2021.
Following the data’s release on Thursday (16 October), market expectations for a rate cut next month jumped from just under 40 per cent to around a 70 per cent chance.
The RBA’s monetary policy decision in November will likely be highly influenced by labour market data and the September quarter inflation figures, due on 29 October.
This week, several senior central bank staff have hinted at the direction of monetary policy going forward.
Speaking at an event in Washington on Wednesday, RBA governor Michele Bullock suggested inflation had been higher than expected, potentially giving weight to the case to leave rates on hold.
Bullock described current monetary policy as “marginally tight” and said her job is not done regarding policy objectives.
In a separate speech to the Citi Australia & New Zealand Investment Conference 2025 on Wednesday (15 October), RBA assistant governor Sarah Hunter provided details around the RBA’s recent downgrade to productivity forecasts, noting the RBA expects medium-term output to grow at around 2 per cent per year, rather than around 2.25 per cent.
Hunter also noted that “underlying inflation in the September quarter is likely to be stronger than we anticipated. This may suggest that the labour market, and economic conditions more generally, remain a bit tighter than we had assessed...”
“Our forecasts imply that the tightness in financial conditions has eased, which will help to keep the economy in balance in the period ahead, with full employment and inflation moving toward the centre of the target range,” she said.
The speeches come after the release this week of the minutes for the RBA board’s September meeting, where members unanimously opted to maintain the cash rate at 3.60 per cent.
Commenting on the latest labour data, Commonwealth Bank of Australia’s (CBA) head of Australian economics, Belinda Allen, said the change “complicates the story for interest rates”.
“Markets have priced in a higher chance of a rate cut in November with around 18 basis points compared to around 10 basis points prior to the labour force release,” she said.
“We have noted there has been tension in the recent data flow for the RBA between activity, inflation and employment…
“Until the tension between inflation and labour market is resolved, we expect the RBA to remain cautious and watchful of the data flow. But today’s labour force figures add to the dilemma.”