Steep decline in employment figures boost prospects of RBA rate cut as early as April

A steep decline in employment figures over the past month has raised prospects the Reserve Bank could cut rates as early as April, economists say.

Employment fell by 53,000 in February off the back of a spike in older workers quitting the workforce – against expectations of 30,000 new jobs created, recent Australian Bureau of Statistics (ABS) figures reveal.

Full-time employment fell by 35,700 in February and part-time jobs declined by 17,000.

However, a fall in jobs can generally mean good news for future rate cuts, because inflation is lowered through reducing demand for staff, which leads to lower wages and in turn less pressure on prices.

Overall, the unemployment rate held steady at 4.1 per cent, in line with market expectations.This was due to less people wanting to work in February compared with January.

Market Economic managing director Stephen Koukoulas said the surprising fall in the number of Australians working should be a concern for the RBA.

“Employment dropped a net 22,300 in the first two months of 2025, the weakest first two months of a calendar year since 1991,” Mr Koukoulas wrote on X (formerly Twitter).

“The RBA would be wise to cut to ensure things don’t get too much weaker. An interest-rate cut is necessary.”

Commonwealth Bank head of economics Gareth Aird said Thursday’s jobs figures “completely blindsided forecasters”, with Australia’s employment growth now looking more robust than extraordinary.

“We don’t think the RBA will be swayed by today’s labour market data at the April Board meeting. That is, we still expect the Board to leave the cash rate on hold and resume normalising the cash rate in May with a 25bp rate decrease,” he said.

“But at the margin it adds a little more weight to the ABS February monthly CPI indicator, due March 26.”

Mr Aird said if inflation data due in March comes in below RBA 0.7 per cent quarterly forecast “April 1 board meeting could shift to live.”

KPMG chief economist Brendan Rynne said the large drop in employment could be a sign households are getting on top of their finances as more Aussies retired and the female participation rate dropped.

“It is possible that a combination of the stage 3 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,” Mr Rynne said.

The RBA cut the cash rate for the first time since the covid pandemic in February dropping the cash rate from 4.35 to 4.1 per cent.

The bank’s new monetary policy board will meet on March 31 to April 1 but so far markets are predicting the next rate cut will come in May.