S&P/ASX 200 Index (ASX: XJO) investors hoping for some interest rate relief from the Reserve Bank of Australia in time for Christmas may find the central bank playing the role of the Grinch.
At 4.35%, the official Aussie cash rate currently stands at its highest level since December 2011. Over the following nine years the RBA's rate decision all went in one direction.
Lower.
The last interest rate cut came in November 2020, when the RBA decreased the official cash rate by 0.15% to the historic, and let's be honest, ridiculously low 0.10%.
This came as global central banks across much of the developed world were desperately trying to stoke inflation. Heaven forbid, after all, that the real value of your cash not erode by 2% to 3% each year, as per the RBA's target.
Well, we all know how that worked out.
With the inflation genie out of its bottle and running rampant, the RBA proceeded to hike rates 13 times between May 2022 and the final hike to 4.35% delivered in November 2023.
Which brings us back to our fading pre-Christmas rate reduction hopes.
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Why a 2024 RBA interest rate cut is looking ever less likely
ASX 200 investor hopes of a pre-Christmas interest rate cut from the RBA were already fading before the Australian Bureau of Statistics (ABS) released September's jobs data on Thursday.
When investors learned that the Aussie unemployment rate remained steady at 4.1%, where it's been for the past six months, the ASX 200 promptly dropped by 0.6%. Though it did close Thursday in the green and at a new all-time high.
Bjorn Jarvis, ABS head of labour statistics noted the strength of the labour market:
The record employment-to-population ratio and participation rate shows that there are still large numbers of people entering the labour force and finding work in a range of industries, as job vacancies continue to remain above pre-pandemic levels.
While a strong labour market is something to celebrate, it does diminish the odds of any interest rate relief at the RBA's upcoming November of December meetings. The central bank has indicated they'd like to see unemployment rise above 4.25% before it begins easing.
That's because a tight labour market is likely to continue putting upward pressure on wages, which in turn trickles through other parts of the economy to fuel inflation.
What are the experts saying?
Commenting on the strength of the Aussie labour market and the odds of a pre-Christmas interest rate cut from the RBA, Jarden economist Anthony Malouf said (courtesy of The Australian Financial Review):
Since the unemployment rate bottomed out in Australia in October 2022, it has risen by about 0.7 percentage points, one of the smallest increases across developed economies…
As global central banks enter an easing cycle, the RBA may be far more reluctant to cut rates anytime soon, particularly given the strength of the labour market and where its policy settings currently stand relative to its peers.
RBC chief economist Su-Lin Ong added, "[Thursday's] September labour force will likely reaffirm the RBA's patient approach with rate cuts remaining unlikely until 2025 and any easing cycle likely to be modest."
Even Commonwealth Bank of Australia (ASX: CBA) head of Australian economics Gareth Aird has dialled back his expectations of an interest rate cut before Christmas post the September labour market data. CBA is the only of the big Aussie banks that still holds out hope for rate relief in 2024.
"Overall, the strength in employment continues to defy the signal sent by the weakness in GDP growth. But the labour force data has to be taken at face value. And we readily admit that the labour market overall has held up better than we anticipated," Aird said.
