The Reserve Bank should keep the cash rate unchanged on Melbourne Cup Day unless incoming data prove September’s unemployment rise was a blip, not the start of a loosening labour market that can absorb another cut without reigniting services inflation.
The unemployment puzzle
The Australian Bureau of Statistics reported the jobless rate at 4.5 percent in September, up from 4.2 percent in August. Financial markets priced a slightly higher chance of a November easing after the print, betting that softer labour demand would force Governor Michele Bullock’s hand.
That reaction treats one month as a trend. The bank’s own forecasts have long assumed unemployment would drift higher as immigration normalises and fiscal stimulus fades. A single tick toward the historical average is not, by itself, proof that aggregate demand has collapsed.
Margins still bite
National Australia Bank’s quarterly business survey shows firms still reporting margin pressure even as input costs ease slowly. Capacity utilisation remains high in parts of construction and healthcare, sectors that feed directly into measured inflation.
If the board cuts solely because of one labour print, it risks adding stimulus while many businesses say they cannot pass costs through. That is how core inflation sticks near three percent while headline numbers look calmer.
What would change our view
We would support easing if underemployment rises for three consecutive months, if job ads fall below pre-pandemic averages, and if wage growth clearly decelerates in the ABS wage price index. None of those conditions are met yet.
Households with large variable mortgages deserve relief, but the cure for mortgage stress is not necessarily a rate cut that rekindles home prices while insurance premiums climb double digits.
The Cup Day calendar
Bullock delivers the Bradfield Oration on Friday, a speech markets will mine for tone ahead of the November board meeting. Cup Day itself is as much ritual as economics, but the decision will land on real borrowers the following morning.
Hold steady until the data string together. Patience is not hawkishness; it is recognition that Australia’s inflation fight is in the services stack, not the commodities screen.
Household balance sheets
Mortgage buffers built during pandemic savings have eroded for many borrowers on fixed-rate rollovers. A cut would lower monthly payments but could reignite bidding wars in suburbs where listings remain thin.
Rental inflation is cooling in Sydney and Melbourne according to CoreLogic, yet insurance and council rate bills continue to reset higher, keeping measured living costs elevated even if interest charges fall.
Global parallels
The Federal Reserve has paused while labour markets soften gradually. The European Central Bank cut with unemployment still near historic lows. Australia’s migration settings make direct comparisons tricky: population growth has masked per-capita recessions in some sectors while supporting aggregate demand.
Our recommendation
We believe the board should wait for the December quarter inflation print and the full November labour force detail, including hours worked and participation by age cohort. If youth unemployment rises alongside headline softness, the case for easing strengthens.
Cup Day should be about racing form, not a surprise rate move driven by one noisy statistic.
Currency channel
A premature cut could weaken the Australian dollar and import inflation through imported goods, offsetting relief on mortgage bills. Exporters in mining and education would welcome a softer currency, but households buying imported vehicles would not.
Communication risk
If the board cuts without a clear narrative, it could signal panic about housing defaults rather than confidence that inflation is beaten. Clear forward guidance matters as much as the basis-point move.
Fixed-rate borrowers rolling onto variable schedules this quarter will feel any hold as continued pain; the board should pair future cuts with macroprudential guidance if housing credit accelerates again.