Jobs and inflation surge signal end to RBA rate cuts, says Big Four Banks

The mood has turned against further interest rate cuts, with jobs data convincing more forecasters the Reserve Bank’s easing cycle is at an end.

NAB on Thursday became the latest big bank to abandon its call for a rate cut in 2026, after the Australian Bureau of Statistics reported employment jumped by a larger-than-expected 42,000 jobs in October.

The unemployment rate fell from 4.5 per cent to 4.3 per cent, also wrong-footing economists, who had predicted the rate to edge down to 4.4 per cent.

On top of a still tight jobs market, underlying inflation is on track to print above the Reserve Bank’s two to three per cent target band for the next six months, activity is accelerating, and the economy is showing signs of being at full capacity, NAB economists say.

The assessment follows comments earlier this week from Reserve Bank deputy governor Andrew Hauser, who revealed the central bank estimated the economy was at its strongest starting point to an economic recovery in more than 40 years.

“If an acceleration in growth starts from an elevated level of capacity utilisation and a labour market with close to full employment, there can be little or no tolerance for above trend growth,” NAB economists Sally Auld, Gareth Spence and Taylor Nugent said.

“Against this backdrop, the RBA will have an enhanced sensitivity to upside surprises in growth and/or inflation.”

NAB’s call brings it in line with the Commonwealth Bank, making them the first two big banks to forecast that the rate-cutting cycle is over.

Nomura economists Andrew Ticehurst and David Seif predicted more forecasters would adopt that perspective, with the consensus shifting to no more cuts.

“We sometimes joke that forecasting data (and markets) can be hard, but ‘forecasting forecasters’ is easier, and we would not be surprised to see others shift to our ‘RBA is done’ view, over coming days and weeks, following this release,” the pair said.

Commonwealth Bank economist Harry Ottley said leading indicators suggested the labour market was not due for any dramatic softening that would give the Reserve Bank second thoughts about staying put.

Job vacancy data and business responses to employment surveys suggested employers were still struggling to find suitable labour, while internal Commonwealth Bank data was also holding up, providing further confidence that jobs growth would remain solid into the future, Mr Ottley said.

“The labour market is a lagging indicator and so the improvements we are seeing in economic conditions should flow through to better employment growth - especially in the market sector.”

However, Westpac economist Ryan Wells said a deeper dive into the data showed the unemployment rate was still steadily rising.

“After smoothing for some of this monthly volatility with a three-month average, the overall unemployment rate is still clearly tracking a gradual uptrend,” Mr Wells said.

ANZ economists Aaron Luk and Adelaide Timbrell affirmed their view for one more rate cut in February, while Westpac predicts the Reserve Bank will cut rates in May and August.