Reserve Bank ’will be undeterred by shock job drop’

Despite a shock fall in employment in February, the central bank is unlikely to deliver back-to-back rate cuts.

Fresh labour force figures were released by the Australian Bureau of Statistics on Thursday. Picture: NewsWire/ David Crosling

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The Reserve Bank is unlikely to deliver a second consecutive interest rate cut at its impending board meeting, despite a shock fall in employment in February, with economists saying the job market remains too strong for further rate relief.

Almost 53,000 workers found themselves out of a job last month, the Australian Bureau of Statistics said on Thursday, partly attributing the decline to fewer older people returning to work.

The surprise outcome, which was driven by a reduction in both full and part-time employment, was the largest decrease since December 2023 and blindsided economists who expected a gain of 30,000 people.

The unemployment rate still held at 4.1 per cent as the participation rate fell to 66.8 per cent, down from its all-time high of 67.2 per cent in January.

Jim Chalmers said while some “softening” in the job market could be expected, he stressed it remained resilient by historical standards, saying the figures were evidence of Labor’s strong stewardship of the economy.

“Low unemployment and much lower inflation is a remarkable combination when you look at our historical experience and what’s happening in other countries,” the Treasurer said.

With Labor holding out for additional interest rate relief to bolster its economic bona fides, economists expect that RBA governor Michele Bullock will be undeterred by the employment drop and will not deliver another rate cut at the central bank’s March 30-April 1 meeting.

Citi economist Faraz Syed said the fresh job figures were “unlikely to sway” the RBA and he suggested that a number of older people could still be attached to a job but were yet to ­return to work, meaning they were technically counted as ­unemployed.

“Ultimately, the labour market remains tight and won’t change the needle for the RBA in April,” he said, instead tipping it would deliver a quarter-point rate reduction at its May meeting, slated for after the federal election, which must be held on or before May 17.

KPMG chief economist Brendan Rynne said recent evidence of an easing in cost-of-­living pressures, which had initially driven more women into the workforce as household fin­ances came under strain, could also be a factor in driving the drop in employment.

“It is possible that a combination of the stage three tax cuts, the February interest rate cut and some wages growth in partner incomes have done enough to ease household budgets and pull them back from looking for work,” Dr Rynne said.

Bond traders, meanwhile, are not expecting the RBA to deliver a quarter-percentage-point rate cut until its following decision, slated for July, amid concerns that Australia’s still-tight job market may stop inflation from holding within the central bank’s 2 to 3 per cent target band.

At 4.1 per cent, the unemployment rate still remains below the RBA’s estimate of so-called “full employment” – the maximum level of employment consistent with holding inflation within the band – at 4.5 per cent.

The RBA’s economists expect the job market to remain tight, with forecasts released in Feb­ruary projecting the unemployment rate to rise to 4.2 per cent by mid-2025.

From there, it estimates that the key jobless measure will remain unchanged for a further two years.