Australia’s interest rate outlook has shifted once again, with competing economic signals clouding the path forward, Ray White chief economist Nerida Conisbee (pictured) says.
October’s unemployment rate fell back to 4.3%, reversing the prior month’s rise and highlighting labour-market resilience. Conisbee said this strength complicates the case for near-term easing.
“A resilient labour market is pushing expectations of rate cuts further out, even as emerging pockets of weakness suggest inflationary pressures may ease sooner than many forecasters anticipated,” she said.
While positive for workers, the sustained tightness makes it harder for the Reserve Bank to argue that inflation risks are fully contained—pushing RBA rate-cut expectations further out.
This theme is now reflected in bank forecasts. NAB has scrapped its expectation of a final cash rate cut in May 2026 and now sees the RBA holding at 3.6% for an extended period amid persistent inflation and limited spare capacity. CBA has taken a similar view, while ANZ and Westpac still expect small cuts in 2026.
Outside the labour market, several parts of the economy are losing steam. Retail spending remains subdued, business surveys show weakening conditions, and credit data point to rising strain among small businesses and leveraged households.
These weaknesses alone may not shift monetary policy, but together they reinforce the view that underlying momentum is fading—just not uniformly.
The construction sector is offering one of the clearest signs that domestic price pressures are unwinding.
“Fresh analysis shows activity is cooling rapidly, with new project starts, wage pressures, and materials cost growth all easing,” Conisbee said.
The Ray White economist said the value of major projects entering the pipeline has dropped by more than half over the past year—a sharp contraction in a sector that has driven inflation for two years.
With completed infrastructure and commercial projects rolling off and far less work replacing them, the outlook points to:
For RBA, this slowdown is significant, given construction’s central role in domestic cost pressures.
Sentiment indicators are also diverging. The ANZ–Roy Morgan index remains firmly pessimistic, reflecting cost-of-living stress and tighter household budgets. Meanwhile, Westpac’s index has turned positive for the first time in nearly four years, signalling improving optimism among some cohorts.
Overall confidence is recovering—just cautiously.
As contradictory indicators accumulate, analysts remain divided. Some now see the first RBA cut delayed until late 2026, while others argue the cooling construction pipeline and patchier consumer activity support the case for easing sooner, once inflation is clearly trending lower.
“The path to lower rates remains open, but as always, data-dependent,” Conisbee said.
For mortgage brokers and borrowers, the message is clear: while labour-market strength may be delaying RBA’s next move, the broader economy is quietly doing some of the work for the central bank.
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