Unemployment holds steady, signaling that the Reserve Bank of Australia (RBA) will likely keep interest rates on hold in the near term.
Australia's unemployment rate was 4.1% in January, same as December, according to seasonally-adjusted data released by the Australian Bureau of Statistics (ABS) on Thursday.
The figures indicate that the labour market remains relatively tight, supporting expectations that the nation's central bank will likely maintain the official cash rate (OCR) at its upcoming March meeting. While interest rates are expected to remain on hold in the near term, the possibility of a future increase cannot be ruled out, as a shortage of available workers relative to open jobs could put upward pressure on inflation.
Mortgage holders and investors across the country have been watching nervously since the RBA lifted the national benchmark interest rate by 25 basis points to 3.85% earlier this month. After the February meeting minutes were released, speculation quickly mounted among banks and brokers that higher rates could be on the horizon.
Despite the chatter, economists are signaling that the RBA is likely to keep rates steady, at least in the short term.
"The release suggests the labour market is in good shape, at a level a little too tight to generate inflation at the mid‑point of the RBA’s target," said Ashwin Clarke, senior economist at Commonwealth Bank of Australia (CBA). "This reinforces our call for a rate hike in May, and that the risks sit with further hikes from there."
The national employment participation rate remained at 66.7% in January, in seasonally-adjusted terms. That means roughly 17,800 people found jobs.
By state, Tasmania had the highest unemployment rate at 4.9%, followed by the Northern Territory at 4.5%. Conversely, Western Australia had the lowest unemployment rate at 3.4%, followed by South Australia at 3.7%.
Unemployment and inflation are the main indicators the RBA monitors when setting interest rates. After three rate cuts in 2025, the bank was steadfast that it would not keep easing monetary policy until inflation was back within the 2% to 3% target band.
However, recent inflation data revealed that both headline CPI and trimmed mean inflation continue to tick upwards.
Headline CPI rose 3.8% in the 12 months leading up to December 2025, up from 3.4% in November. Meanwhile, the trimmed mean inflation jumped to 3.4% during the same time period, compared with a 3% increase in the 12 months leading to November 2025.
In its February meeting minutes, the RBA board noted that current monetary policy was not restrictive enough.
Aaron Luk, an economist at ANZ, added: "The [unemployment] data is likely to reinforce the RBA's thinking that the labour market remains a little tight."
The RBA will hold its next monetary policy meeting on 16 and 17 of March.
