Introduction to Interest Rates
Fresh jobs data may provide further clues about the likelihood of a Reserve Bank interest rate rise in February. The Australian Bureau of Statistics will release the labour force data, which will be the first major economic indicator since RBA governor Michele Bullock revealed the central bank would have to consider a rate increase in 2026.
The Current Economic Situation
Speaking to media after the RBA’s monetary policy board held the cash rate at 3.6 per cent, Ms Bullock said the board would have to consider raising rates in February, if inflation and jobs data suggested financial conditions were not tight enough. The RBA still believes labour market conditions are a little tight, with unemployment at a relatively low 4.3 per cent and measures of labour underutilisation subdued.
Predictions for Unemployment Rates
RBA staff have forecast the unemployment rate to rise to 4.4 per cent by the end of 2025 and stay there for two years. The consensus view among market economists has unemployment ticking up to 4.4 per cent. However, CBA’s head of Australian economics, Belinda Allen, thinks it will hold at 4.3 per cent with an extra 25,000 jobs added to the economy in November.
Economist Expectations
ANZ economist Aaron Luk also expects the unemployment rate to stay at 4.3 per cent with a continued decline in job ads, suggesting modest employment growth of 15,000. If the unemployment rate continues to hold below the RBA’s forecasts, that would further add to the case for a February rate hike.
Upcoming Economic Indicators
Before the potential rate hike, the ABS will release another labour force update on January 22. The biggest piece in the data puzzle will come on January 28, when inflation figures for the December quarter are published. "There are still some question marks about whether or not those inflation pressures are temporary or persistent. We should get some more answers on that after the December quarter inflation print," Ms Allen said.
The Potential Impact of Inflation
But what has also become clearer is that the stronger consumer environment, together with recovering business investment and still solid public demand has meant the economy is very close, if not above, its capacity limits. And that’s why you’re starting to see more conversations around inflation and higher interest rates from here.
Conclusion
In conclusion, the Reserve Bank’s decision to potentially raise interest rates in February will depend on the upcoming labour force data and inflation figures. If the unemployment rate holds below forecasts and inflation pressures persist, it could lead to a rate hike, further adding to the financial heat for struggling borrowers. The next few months will be crucial in determining the direction of interest rates and the overall state of the economy.
