RBA wary of unemployment jump ahead of rates call

Fears unemployment could lift by more than expected in a fading economy factored into the central bank's decision to leave interest rates unchanged this month.

The Reserve Bank of Australia board deliberated over a possible 25 basis point increase or keeping the cash rate on hold at 4.35 per cent, the minutes from the December meeting confirm, with the door left open to more tightening if the incoming data calls for it.

Keeping interest rates unchanged was deemed the stronger call as the flow of data over the month came in broadly in line with the RBA's expectations, with the board recognising "encouraging signs of progress" towards its goals.

The "possibility of a larger rise in the unemployment rate than anticipated" also fed into the case to keep the cash rate on hold.

Shoppers in Melbourne
Inflation was slowing but still above the RBA's target level.

The jobless rate has been moving higher, hitting 3.9 per cent in November to be 0.3 percentage points higher since the central bank last updated its economic forecasts.

Commonwealth Bank head of Australian economics Gareth Aird said this was a significant lift in the jobless rate in that time, and was suggestive of an economy slowing more quickly than expected.

"Our suspicion is that the RBA has wanted to subtly convey today that the economy has indeed slowed more than they expected in November," Mr Aird wrote in a note.

The case for lifting interest rates further in December stemmed from strong domestic demand "judged still to be running above the level consistent with the inflation target".

"And growth could be supported in the year ahead by a recovery in real household disposable income as inflation declined," the minutes read.

The rates decision was made ahead of the September quarter national accounts that revealed a particularly bruised household sector.

Also in the context of another interest rate hike, board members discussed RBA forecasts for inflation only hitting the top of the two-three per cent target range rather than the mid-point by late 2025.

"Members noted that the staff’s most recent forecasts, which were predicated on a lift in productivity growth, would see inflation return to the top of the target band by the end of 2025, rather than the midpoint of the band," the minutes read.

Greater emphasis on the mid-point was outlined in a newly-agreed framework signed off by both the federal government and the RBA - yet there was still flexibility built into the statement around the timing of meeting price stability and full employment goals.

RBA headquarters
The decision to keep rates on hold reflected concerns over a possible jump in unemployment.

National Australia Bank head of market economics Tapas Strickland said the mention of the mid-point was the first since the hiking cycle kicked off in May last year and differed from the board's consistent framing of returning inflation to the top of the band. 

December quarter inflation data, due in late January 2024, will be all-important ahead of the next cash rate meeting in February.

"NAB continues to see the RBA hiking in February; much will depend on the details and risks around returning inflation to the mid-point by the extended forecast horizon of mid-2026," Mr Strickland wrote in a note.

He said cuts as early as the first half of next year, as the market is pricing, were unlikely either way.

Mr Aird said the need for more rate rises had dissipated and the next move will likely be down, starting from September next year.

"Against the backdrop of rising unemployment and falling GDP per capita the board will be quite reluctant to tighten policy further," he said.

The RBA has increased interest rates by 425 basis points since May last year in a bid to bring down still-high inflation.

License this article

What is AAPNews?

For the first time, Australian Associated Press is delivering news straight to the consumer.

No ads. No spin. News straight-up.

Not only do you get to enjoy high-quality news delivered straight to your desktop or device, you do so in the knowledge you are supporting media diversity in Australia.

AAP Is Australia’s only independent newswire service, free from political and commercial influence, producing fact-based public interest journalism across a range of topics including politics, courts, sport, finance and entertainment.

What is AAPNews?
The Morning Wire

Wake up to AAPNews’ morning news bulletin delivered straight to your inbox or mobile device, bringing you up to speed with all that has happened overnight at home and abroad, as well as setting you up what the day has in store.

AAPNews Morning Wire
AAPNews Breaking News
Breaking News

Be the first to know when major breaking news happens.

Notifications will be sent to your device whenever a big story breaks, ensuring you are never in the dark when the talking points happen.

Focused Content

Enjoy the best of AAP’s specialised Topics in Focus. AAP has reporters dedicated to bringing you hard news and feature content across a range of specialised topics including Environment, Agriculture, Future Economies, Arts and Refugee Issues.

AAPNews Focussed Content
Subscription Plans

Choose the plan that best fits your needs. AAPNews offers two basic subscriptions, all billed monthly.

Once you sign up, you will have seven days to test out the service before being billed.

AAPNews Full Access Plan
Full Access
  • Enjoy all that AAPNews has to offer
  • Access to breaking news notifications and bulletins
  • Includes access to all AAPNews’ specialised topics
Join Now
AAPNews Student Access Plan
Student Access
  • Gain access via a verified student email account
  • Enjoy all the benefits of the ‘Full Access’ plan at a reduced rate
  • Subscription renews each month
Join Now
AAPNews Annual Access Plan
Annual Access
  • All the benefits of the 'Full Access' subscription at a discounted rate
  • Subscription automatically renews after 12 months
Join Now

AAPNews also offers enterprise deals for businesses so you can provide an AAPNews account for your team, organisation or customers. Click here to contact AAP to sign-up your business today.

Download the app
Download AAPNews on the App StoreDownload AAPNews on the Google Play Store