Unemployment Rise Raises Prospects of RBA Rate Cuts

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The RBA previously forecasted in its Statement of Monetary Policy that unemployment would peak at 4.3% and remain steady until late 2027. However, the recent data indicates that this figure has been surpassed, raising possibilities for a change in monetary policy direction.

Despite the rise in unemployment, there were some positive signs: the participation rate edged up by 0.1 percentage points to 67.0%, although still below the record high of 67.2% earlier this year. Additionally, the number of employed people increased by 15,000, with a modest growth in aggregate monthly hours worked by 0.5%.

The underemployment rate rose by 0.2 percentage points to 5.9% in seasonally adjusted terms, resulting in an increase in the underutilisation rate by 0.4 percentage points to 10.4%.

This shift in employment figures is critical as it may compel the RBA to reconsider its current monetary policy. With an inflation announcement due on October 29, the central bank faces the challenging task of balancing inflation risks with the labour market's realities. A significant factor influencing the decision will be whether upcoming inflation data supports a need for further economic stimulus.

If the labour market does not show signs of stabilising or improving, the RBA might reduce interest rates sooner and more aggressively than planned to stimulate economic activity and support employment. This decision would directly affect mortgage rates, loan products, and the broader economic outlook for households and businesses.

The upcoming release of the Q3 CPI inflation data will be pivotal in guiding the RBA's next steps. Should the data reveal increased inflationary pressures, the central bank will need to weigh these against the need for economic support to curb unemployment. Economists and market observers will be closely watching these developments, which could influence monetary policies and economic strategies in the near term.

Businesses and consumers may need to prepare for potential changes in lending rates and economic conditions. As the economic landscape evolves, understanding these movements is crucial for making informed financial decisions.

Published:Friday, 17th Oct 2025
Source: Paige Estritori

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