Australian labor market remains tight and limits rate cut prospects for RBA

According to the data released by the Reserve Bank of Australia (RBA), the country's labor market is still tight, while the gap between the level of overall demand in the economy and its supply capacity is narrowing.

As estimated by the regulator's analysts, the average figure for NAIRU - the lowest rate of unemployment that can be sustained without accelerating inflation - fell to 4.69% in March from 4.75% in February. The decline indicates the resilience of the Australian labor market. The country's unemployment rate has fluctuated between 3.9% and 4.2% over the past year. In February, it held steady at 4.1%.

The accompanying RBA survey for January indicated that the central bank is basing its estimate on NAIRU's estimate of 4.5%. This is lower than its model projections, but still above the RBA's November 2024 average forecast of 4.3% made by market economists.

The documents explain the RBA's cautious stance and its officials' reluctance to cut interest rates quickly despite signs of disinflation. Last month, the central bank lowered borrowing costs for the first time in four years. However, central bank officials said further monetary easing in the near future could jeopardize recent progress in bringing inflation to a slowdown.