Rising unemployment rates mixed with persistent global uncertainty is a recipe for the Reserve Bank of Australia's (RBA) next rate cut, some market participants say.
CBA economists said "a rate cut in May is a done deal," while ANZ is anticipating three more 25 basis point reductions throughout 2025.
Meanwhile, economic indicators are mounting, with a slight rise in job hunters and continued anxiety over international affairs — and what it means for Australia.
The Australian Bureau of Statistics' (ABS) latest data reveals that seasonally adjusted unemployment increased slightly in March to 4.1%, up from 4% the month before. The number of unemployed individuals also rose, to 613,900, underscoring a cooling in what has been a resilient labor market.
"I think the employment rate will affect [a potential rate cut] a little bit," Darren Coff, managing director at mortgage brokerage Investure, told Australian Broker. "But I think we're definitely seeing a slowdown of the economy all around the place, in small businesses and things like that. So I think the RBA will reduce some rates and get some action happening out there."
Ryan Wells, senior economist at Westpac and Illiana Jain, an economist at Westpac, added in a joint note that "overall, the RBA are likely to see this data as broadly in line with their expectations, still reflecting a degree of tightness relative to full employment."
Still, market players have previously expressed concern over rising unemployment. And rightfully so. Fewer people with jobs meaning less overall consumer spending, and a higher chance of recession. While it may be too soon to tell, it's still a cause for alarm among mortgage holders and investors saddled with Australia's continued rising cost of living.
Borrowers were dismayed earlier this month when the bank decided to hold the official cash rate (OCR) at 4.10%. Many were hoping for some added rate relief. But recessionary fears could be another factor influencing the RBA's decision in May.
Adding to domestic concerns are the ongoing tensions in the international arena, most notably the escalating trade wars between the US and China.
Earlier this month, Westpac slashed its Australian economic growth forecast — expecting a 1.9% growth rate this year, down from the previously anticipated 2.2% — thanks to US President Donald Trump's Liberation Day tariffs, their effects on international markets and softening consumer demand.
Matthew Hassan, Westpac's head of Australian macro-forecasting, described the "weakening external environment and mounting evidence of sustained slowing in domestic inflation" as reasons for a 25 basis point cut in May.
The Westpac Melbourne Institute Leading Economic Index for March was one example of the ongoing headwinds. The report revealed that the Australian economy's annualized growth rate was edging down month over month.
Over at CBA, Belinda Allen, senior economist, echoed the sentiment.
"We expect interest rate cuts over the coming year to see consumers loosen their purse strings. But global uncertainty from the US tariffs may impact this recovery," she said.
But while rate cuts could be a sign of a looming recession and lower GDP, they're good news for mortgage holders — and brokers.
Lower rates increase borrowing power, home loan applications and the desire among homeowners to refinance or upgrade, among other things.
In fact, brokers say the market has been abuzz with business since the start of the year.
"We've had the busiest start to the year. It hasn't slowed down," said Luke Ashby, financial specialist and mortgage broker at Emerge Finance. "The first week and half of January was quiet because everyone was still on holiday. But since then, it's just been full steam ahead.
"A lot of people are looking to refinance; a lot of people getting pre-approvals. A lot of purchases are happening," Ashby said. "And quite a lot of investors tend to get in to buy their first investment property, or second, or third. So yeah, plenty of activity, which has been great."
Coff agreed. Despite the slowdown in consumer discretionary spending, he said there's "so much pent up demand" in the housing market, which has resulted in a flurry of activity.
"We've just had our best months in the last 12 months; we're not seeing any slowdown at all," he said. "First-time buyers, if they can find the right property at the right price, they're buying."
