A drop in unemployment has prompted another big four bank to signal that there will be no further rate cuts.
National Australia Bank (NAB) has updated its interest rate forecast and suggested it is the end of the rate-easing cycle.
The major said it expects rates to remain on hold for an “extended period”, with no further cuts predicted.
Its updated forecast comes after a larger-than-expected decline in the monthly unemployment rate dampened hopes of further rate cuts in the near future.
The unemployment rate eased to 4.3 per cent in October, down from 4.5 per cent in September in seasonally adjusted terms, according to the Australian Bureau of Statistics (ABS) data.
Unemployment fell back by 17,000 after a jump last month, while the number of employed people rose by 42,000.
“We now see the Reserve Bank of Australia (RBA) on hold at 3.6 per cent through to the end of our forecast horizon (previously we forecast a 25 basis point cut in May),” NAB’s chief of economics, Sally Auld, said.
“Growth has accelerated and the economy is already exhibiting signs of elevated capacity utilisation. The acceleration in house price growth and investor lending also argues for stable policy at a minimum.
“For the RBA, the appropriate stance will be to remain broadly around neutral, for now.”
End to rate-easing cycle?
At the end of last month, the Commonwealth Bank of Australia (CBA) also changed its cash rate outlook, after quarterly inflation came in higher than expected.
The major is forecasting an end to the rate-easing cycle.
After the latest labour print, CBA economist Harry Ottley reiterated the bank’s outlook.
“We do not expect the labour market to loosen much further and expect the cash rate to remain on hold at 3.6 per cent in 2026,” Ottley said.
“Today’s data will likely reaffirm the Reserve Bank’s view that the labour market remains ‘a little tight’ and reinforces our view that interest rates will be on hold for the foreseeable future.”
Australia and New Zealand Banking Group’s (ANZ) economics team is forecasting one more rate cut in the current cycle.
“Today’s results likely reaffirm the RBA’s position that labour market conditions ‘remain a little tight’ and are broadly in line with the RBA’s Q4 forecast of the unemployment rate of 4.4 per cent,” it said.
“We do not expect the data to have a material impact on the RBA Board’s monetary policy decision in December, where we and the market expect a hold.”
ANZ expects the RBA to cut the cash rate one final time next year, likely in February, and then keep the cash rate at 3.35 per cent for an “extended period”.
Ryan Wells, economist at Westpac, said the softening labour market will ease worries for the RBA.
“While October’s data was solid, it largely offsets a weaker-than-expected read in September. To our mind, the underlying narrative has not changed: the labour market is gradually softening and becoming ‘less tight’,” Wells said.
“With a labour market not posing any material upside risks to inflation, nor deteriorating rapidly enough to warrant major concern, the RBA can remain squarely focused on assessing multiple quarterly prints for inflation and regaining confidence that underlying inflation is indeed on track to continue moving toward the mid-point of the target range next year.”
Recent data generally supports the case to keep rates on hold rather than shift towards lowering them further.
Lending rose sharply in the September quarter, with investor lending soaring to record highs, while house prices continue to climb.
The RBA’s Monetary Policy Board will hold its final meeting of the year on 8 and 9 December.
[Related: Big 4 bank rules out further rate cuts]
