RBA’s shock rates hold was based on steady unemployment expectations
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The news: The Reserve Bank of Australia’s recent shock decision to hold the cash rate steady at 3.85% was based on expectations there would be “little change in the unemployment rate in the near term”, although this has not borne out in recent data.
The context: According to minutes from the Monetary Policy Board’s Meeting in July, released on Tuesday morning, members considered ongoing labour market tightness to strengthen the case for the central bank to hold the cash rate steady, contrary to market expectations.
They flagged that while employment growth in the non-market sector — including health care, education and public administration — “started to ease in early 2025 from a rapid pace”, employment growth in the market sector picked up a little in year-ended terms.
As such, they posited the “unemployment rate could hold steady even if this transition occurs with somewhat lower overall employment growth, depending on developments in labour force participation”.
The board members also flagged that unemployment was unchanged in May and stable over the preceding year, while “other indicators pointed to little change in the unemployment rate in the near term”.
However, the “uncertainty around whether market sector employment growth would increase by enough to offset an expected slowing in non-market sector employment growth to maintain momentum in overall employment growth” lent credence to the case for a rate cut.
The latest unemployment rate figures, released on 17 July, also defied market expectations by jumping to 4.3% instead of holding steady at 4.1%.
At the time, Australian Bureau of Statistics head of labour statistics Sean Crick said "this month we saw a decrease in full time hours worked, down 1.3%, associated with a 0.4% fall in full time employees”.
Crick noted the “trend unemployment rate has risen to 4.2%, after remaining at 4.1% over the previous three months”.
The source: RBA Monetary Policy Board meeting minutes
