The major banks remain convinced a weaker jobs print will not derail the RBA’s tightening plans.
Australia’s major banks are maintaining their official forecasts for the Reserve Bank of Australia (RBA) to lift the cash rate by 25 basis points at Tuesday’s meeting, despite the unemployment rate rising 0.2 percentage points to 4.6 per cent in August.
The consensus among the big four is that the latest labour-force figures point to a gradual easing in labour-market conditions, but do not yet provide enough evidence of a broader slowdown to outweigh the central bank’s inflation concerns.
Jobs easing, but inflation remains central
The Australian Bureau of Statistics (ABS) revealed last week that unemployment rose to 4.6 per cent in August, above the RBA’s August forecast of 4.5 per cent for the December quarter.
The National Australia Bank (NAB) said the result, taken at face value, signalled a less tight jobs market than policymakers had anticipated.
Yet the bank stressed that the RBA’s renewed emphasis on bringing inflation to target meant a September rise remained its central case.
“We continue to see the RBA hiking at the September meeting next week. The inflation challenge is real, but further signs of cooling in growth and the labour market would reduce the risk of back-to-back increases,” NAB outlined.
The Commonwealth Bank of Australia (CBA) reached a similar conclusion, saying that while the unemployment rate had risen a little faster than the RBA expected, it was unlikely to change the Monetary Policy Board’s focus next week.
“Altogether, the data does not change our expectation that the RBA will hike the cash rate by 25bps at its meeting next Tuesday (29 September),” CBA said.
CBA and Westpac recently brought forward their forecast for the next rise from November to September.
ANZ retains prediction of back-to-back hikes
Australia and New Zealand Banking Group (ANZ) has also preserved its September forecast, arguing that the jobs release did not materially alter the likely policy outcome.
“As far as next week’s RBA board meeting is concerned, we don’t think this release will change the likely decision (we expect a 25bp increase),” the bank said.
ANZ remains the most hawkish of the big four on what comes after September and is currently the only major bank forecasting a second 25bp increase in November.
The bank said persistent price pressures and higher oil prices would keep the RBA focused on ensuring inflation returns to target sustainably.
“Despite the signs that labour market tightness is gradually unwinding, inflation pressures remain persistent and higher oil prices present an additional upside risk to the inflation outlook,” it outlined.
“We think these factors will keep the RBA focused on ensuring inflation returns sustainably to target and expect the RBA to raise the cash rate by 25bp in both September and November 2026.”
As at 24 September, the ASX 30-day interbank cash-rate futures October 2026 contract was trading at 95.425, implying a 90 per cent probability of a rise to 4.60 per cent at the September meeting.
Markets are also pricing further quarter-point increases in November and December.
If those moves were fully realised, the cash rate would reach 5.10 per cent, above its level at any point since December 2008.
Governor Bullock’s final public remarks before the meeting have reinforced the view that policymakers remain more concerned about entrenched inflation than an early sign of labour-market cooling.
Speaking at a Committee for Economic Development of Australia event in Sydney on 22 September, Bullock said the labour market was still “tight” and that a somewhat higher unemployment rate may be required to ease pressure on prices.
“I think [an unemployment rate] between 4.5 per cent and 5 per cent will probably take enough heat out of the labour market that it’ll ease pressure on inflation,” Bullock said.
Bullock also recently told Parliament that upside risks identified by the RBA in August were beginning to emerge, despite slowing economic growth.
“Developments since then suggest that although growth in the Australian economy is slowing, some of these upside risks to inflation appear to be materialising,” she said.
“Higher oil prices have increased inflation directly through their impact on petrol prices, but it’s also had an indirect impact, as many firms have passed input cost pressures arising from elevated fuel prices through to the prices of other goods and services.
“Because of these capacity pressures and the Middle East conflict, inflation is likely to remain elevated for some time.”
Buyers and borrowers face uncertainty
The prospect of additional rate rises comes as first-home buyer (FHB) activity and broader borrowing demand remain subdued.
Moses Samaha, executive general manager at Equifax Australia, said FHB demand had declined 20 per cent year-on-year in August, while a 14 per cent annual fall in borrowing activity showed sentiment remained under pressure.
“We may well be at or near rock bottom in terms of this contraction cycle, but any future interest rate rises will have the potential to reset that baseline,” Samaha said.
“Naturally, further increases to cash rates could hold even more prospective buyers back.”
He added that government measures designed to improve FHB access had not yet delivered a material demand response.
“One of the intended purposes of the changes was to level the playing field and assist first home owners in entering the market, but our data indicates those measures haven't yet stimulated demand as hoped,” he explained.
“What we observe is that when falling property values compound with elevated rates, buyer appetite slows down. Until property values stabilise and rate certainty returns, policy incentives alone aren't moving the needle.”
Christmas repayment pressure
Meanwhile Evolve Lending and Finance managing director Mark Stevenson argued that the pressure facing mortgage holders reflected fiscal settings as well as monetary policy.
“This month’s RBA decision was partly written in May, in the budget, not by the Reserve Bank,” Stevenson said.
“The government has far more tools than the Reserve Bank to manage demand, and in May it pulled them in the wrong direction by raising taxes on property investors and lifting spending in the same budget.”
Stevenson said rate rises placed the adjustment burden unevenly on mortgaged households while higher-income depositors benefited from stronger returns.
“Rate increases are a brake on one wheel,” he said.
“They squeeze the 30- to 54-year-old mortgage holder, including thousands in Western Sydney, while paying older and wealthier deposit holders more, who keep spending on services, which is where inflation is stickiest.
“Borrowers should work out now what another quarter of a per cent adds to their repayments, and if it is tight, have the conversation with their broker before Christmas, not after.”
[Related: ANZ predicts back-to-back hikes as majors tip September rise]
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