The major banks believe a robust surge in December jobs data will fuel the chances of a rate hike at the RBA’s February meeting.
Economists from the four major banks have warned that December 2025’s surprise fall in unemployment will pile further pressure on the Reserve Bank of Australia (RBA) to consider hiking rates when it meets next month.
Australia’s unemployment rate eased to 4.2 per cent in trend terms for December 2025, down from 4.3 per cent in November.
Employment grew by 24,800 people to 14,686,100 – a 0.2 per cent monthly rise and 1.2 per cent yearly gain of 180,800.
Seasonally adjusted, the rate fell further to 4.1 per cent, the lowest since May, after a 65,200 jump in jobs to 14,684,100, beating yearly growth of 1.1 per cent.
The number unemployed fell 6,400 to 646,600 trend or 29,800 to 628,600 adjusted, with the youth rate improving to 9.5 per cent trend.
The states showed mixed, but firm trends, with gains recorded in NSW and Victoria, while numbers held steady in Western Australia and South Australia.
The second-half rebound of 106,000 trend jobs versus the first half’s 75,000 tests the RBA’s November view of gradual cooling after 2024’s peak rates.
NAB warns of incoming hikes
The major banks, chiefly National Australia Bank (NAB), noted that the figures beat the RBA’s 4.4 per cent Q4 unemployment forecast and revived tightening talk ahead of looming CPI figures.
NAB senior economic Taylor Nugent said: “The labour market now joins inflation and consumption in tracking stronger than the RBA’s November forecasts.”
The bank said the 65,000 seasonally adjusted job gains topped their 40,000 prediction – rebounding from recently weak months, yet stated trend employment growth was still low.
“The labour market had been one of the only data points not unambiguously concerning for the RBA, but they will now add it to the list of things that are tracking stronger than their expectations as they finalise their February forecasts,” Nugent said.
However, he cautioned against overreaction and said the unemployment rate had a tendency to “at least partially unwind large month to month moves.”
Nugent said the lower-than-expected starting point tilted the risk to “retightening, from a starting point where they already assessed the labour market as too tight.”
NAB said it expected the RBA to hike interest rates in February and May.
ANZ hinges February hikes to CPI
Australia and New Zealand Bank (ANZ), meanwhile, labelled the 4.1 per cent drop as “unexpected” against 4.3 per cent expectations.
“The decline in the unemployment rate does make a February rate hike more likely at the margin,” it said.
It said the central bank would likely hold if Q4 trimmed mean CPI came in at 0.8 per cent and hike if it came in at 0.9 per cent.
The bank also cast doubt on December’s lower unemployment rate setting a lasting trend.
“Looking forward, we don’t think the decline in the unemployment rate in December marks the start of a new trend given the softness in measures of labour demand,” ANZ said.
“We also don’t expect the RBA’s forecasts in the upcoming SMP to show an ongoing decline in the unemployment rate from here.”
CBA flags return to tightening
Commenting on the figures, the Commonwealth Bank of Australia (CBA) said the unemployment figures reflected “broad-based strength” offsetting November, with 65,200 jobs – beating their 35,000 forecast and the market consensus of 27,000.
The major bank said that before the December figures, the jobs market in totality was already “too tight” for the RBA and that the recent retightening in conditions provided “additional support to our call of a February rate hike”.
CBA said it expects the cash rate to increase to 3.85 per cent and that it would remain there for the “foreseeable future.”
“But if the renewed tightening continues into 2026, additional hikes cannot be ruled out,” it said.
The bank said the release of 2025’s December CPI figures on 28 January would play a major role in determining if the RBA would move to lift interest rates.
Westpac sees softening narrative paused
Westpac economist Ryan Wells declared the December data “landed on the firmer side”, with recent months halting the “gradual softening” story that defined much of 2025.
He said it raised doubt on further easing in 2026, as care economy job growth normalised and market sectors accelerated – potentially marking a “trough” in jobs expansion, as per the ABS’ 2025 Labour Account analysis.
The bank said labour force participation trends would prove pivotal, with Wells forecasting supply growth outpacing jobs to build slack, though in “fits and starts” from a stronger 2026 entry.
Against consumer upswing and rising inflation signals, he said the RBA would be “unlikely to waver from a more hawkish perspective on the economy.
“But as far as the February policy decision is concerned, next week’s reading on inflation will again be the deciding factor,” it said.
Westpac’s most recent outlook (late 2025/early 2026) shifted from forecasting rate cuts to expecting an extended hold for the cash rate through 2026.
The RBA will next meet to decide the cash rate on 3 February.
[Related: Spending surge adds fuel to February rate hike calls]
