RBA Rate Hike Odds Jump to 35% as Unemployment Stays Low on July 28

The odds of an Australian interest rate hike in August jumped from 20% to 35% after the economy added 76,000 jobs in June and unemployment held steady at 4.4%. Financial markets now see a rate rise to 4.6% as virtually certain by December 2026, the highest level since 2011. This shift comes despite most major banks still expecting the RBA to hold rates steady at its August meeting.

Why the jobs data sparked rate hike bets

Australia’s unemployment rate stayed flat at 4.4% in June after 76,000 jobs were added, data that surprised markets to the upside. AMP’s deputy chief economist Diana Mousina said this strong labour force data gives the RBA room to hike rates again, because there will be less concern that another interest rate increase will hurt the economy. The stronger employment picture reduces the RBA’s worry that raising rates could tip the economy into recession, removing a key brake on further hikes.

The rate forecast split between banks and traders

Westpac is the only major bank forecasting a 0.25% rate hike in August, which would take the cash rate to 4.6%. NAB, CBA, and ANZ all expect the RBA to hold steady at its next meeting. However, financial markets have priced in a rate rise as increasingly likely by December. CBA economist Trent Saunders said next week’s Consumer Price Index release will be an important signal ahead of the August meeting.

The triple threat to household budgets

Australians face a potential perfect storm beyond interest rates. Headline inflation sits at 4.0%, well above the RBA’s 2-3% target range. Global oil prices have climbed above US$100 per barrel following attacks by Yemen’s Houthi rebels on two Saudi oil tankers in the Red Sea. If rates rise to 4.6% by year-end, homeowners will face their highest borrowing costs since 2011, while elevated inflation and fuel costs squeeze household spending power simultaneously.

The RBA’s inflation balancing act

RBA Governor Michele Bullock acknowledged on July 28 that the global economy faces recurring supply shocks from Middle East conflicts, severe weather, and trade tensions. The central bank must keep inflation expectations anchored while managing growth risks. The dilemma: stronger employment suggests the economy can handle rate hikes, but raising rates risks deepening the housing market slump already underway and could worsen the cost-of-living squeeze on households already struggling with inflation and fuel costs.

Final Thoughts

Mortgage holders face mounting pressure from rate hike odds now at 35% for August and near-certainty by December. With inflation above target and oil prices spiking, the RBA must choose between fighting inflation and protecting household finances. The CPI data due July 29 will be critical to the August decision.

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