‘No magic wand': RBA explains what they are looking for ahead of next rate call

News.com.au

24-07-2025

A tight labour market blocked a rate cut in July, but the RBA boss says the central bank isn't looking for mass lay-offs.
In her speech at the Anika Foundation Fundraising lunch on Thursday, RBA governor Michele Bullock revealed what the central bank will be looking for when it meets in August to discuss the cash rate.
She said the board wanted to see a gradual easing in labour market conditions, that has so far been most evident in fewer job vacancies, reductions in hours worked and declining rates of voluntary job switching.
'These shifts aren't without their challenges, but they all tend to be less disruptive than outright job losses,' she said.
Pointing to last week's ABS labour market data, Ms Bullock said it wasn't a 'shock', despite the figures showing job losses spiked to their highest point in more than three years at 4.3 per cent.
'Some of the coverage of the latest data suggested this was a shock – but the outcome for the June quarter was in line with the forecast we released in May,' she said.
The RBA forecast unemployment to average 4.2 per cent through the June quarter.
She said June monthly data showed a 'noticeable pick-up' in the unemployment rate but when looking at other measures, such as vacancy rates, the jobs market remained stable.
'More broadly, leading indicators are not pointing to further significant increases in the unemployment rate in the near term,' she said.
Ms Bullock noted there were signs of a slowing jobs market including falling jobs vacancies and the average hours worked declining, although both remained high compared to historic levels.
She said these conditions are challenging for people but they are more favourable than outright job losses.
'Having your hours cut is tough, but it's often preferable to losing a job altogether,' Bullock said, noting some of the decline in hours worked had been voluntary.
'I should note the RBA can't wave a magic wand and control how adjustments in the labour market play out. Interest rates are too blunt an instrument for that.
'Losing a job can be one of the most stressful events in someone's life, and it can have far-reaching implications for families and communities.'
The governor highlighted the central bank does not have a jobs target and is not looking for a certain number of job losses.
Ms Bullock's speech reinforces the message from the minutes of the RBA's monetary policy board meeting, released on Wednesday, where the central bank revealed a tight labour market was the key blocker of further rate cuts.
'Recent monthly CPI indicator data – which can be volatile and does not cover all items in the CPI – were broadly consistent with this expectation,' the RBA board said.
But with more Australians currently in work, the board remained wary the strong employment figures could lead to an increase in inflation.
'The labour market was assessed to have remained tight, with measures of labour utilisation little changed over the prior year,' the minutes read.
'Growth in private demand had begun to recover, but was still subdued.'
A cautious RBA monetary board held the official cash rate at 3.85 per cent following its July meeting, with the shock move defying expert commentators and predictions from the money markets.
The board voted 6-3 in favour of the hold.
'A minority of members judged that there was a case to lower the cash rate target at this meeting,' the board said.
'These members placed more weight on downside risks to the economic outlook – stemming from a likely slowing in growth abroad and from the subdued pace of GDP growth in Australia.'
The RBA monetary policy board will next meet on August 12, with money markets widely forecasting a rate cut.