TEMPO.CO, Jakarta – Australia's Reserve Bank (RBA) is facing increasing pressure to consider cutting interest rates as signs of economic weakness emerge, even as inflation remains a concern and policymakers remain divided over the outlook.
Recent data has complicated the central bank's next move. Inflation eased in the latest Consumer Price Index figures released in May, while the unemployment rate climbed to 4.5 percent, its highest level since 2021. The figures have prompted some economists and analysts to argue that the Reserve Bank of Australia (RBA) should shift its focus from inflation control toward supporting economic growth.
According to Real Estate, Wealth Within chief analyst Dale Gillham warned that delaying rate cuts could increase the risk of recession. He noted that unemployment may rise further as government spending slows, particularly because jobs linked to the National Disability Insurance Scheme have accounted for a significant share of recent employment growth.
"With households and businesses already feeling the impact of past rate hikes, the RBA risks turning a slowdown into a recession if it waits too long to cut rates," Gillham said.
Australia's economy has experienced a volatile interest rate cycle in recent years. After a series of rate cuts in 2025, inflationary pressures resurfaced, prompting the RBA to reverse course and implement three consecutive rate increases in 2026.
ABC News reported that financial markets and economists are now sharply divided over what comes next. While futures markets continue to price in another rate increase to 4.6 percent, bond markets have begun signaling expectations of lower rates ahead.
The divergence is reflected in forecasts from major banks. Commonwealth Bank expects two rate cuts next year, while ANZ believes the hiking cycle has ended and rates will remain unchanged for some time. Westpac, meanwhile, forecasts two additional increases, while NAB expects one more hike.
Recent moves by lenders have added to speculation that rates may have peaked. Last week, Macquarie Bank reduced rates on its three-year fixed home loans by 0.5 percentage points, while ANZ lowered rates on selected two-year fixed products. Such adjustments are often interpreted as signals that banks anticipate lower rates in the future.
The moves came after more than 80 lenders had increased rates earlier this year following the RBA's policy tightening.
Gillham argued that the effects of previous rate hikes are still filtering through the economy.
"Higher interest rates have already crushed borrowing power, consumer confidence is fading, businesses are slowing hiring, and households are cutting spending," he said.
Inflation, however, remains a significant concern for policymakers. Although price growth eased recently, economists warn that geopolitical tensions in the Middle East continue to pose risks to global energy markets and consumer prices.
ABC News also revealed that many oil analysts remain surprised crude prices have not climbed above US$100 per barrel despite ongoing instability in the region. Any significant increase in energy prices could reignite inflationary pressures and complicate the RBA's decision-making.
At the same time, developments in Australia's property market may be reducing some inflation risks. Housing markets in Sydney and Melbourne have already shown signs of softening, while price growth in Perth and Brisbane has slowed.
Property remains a major driver of economic activity in Australia, influencing household spending, bank profitability, and investor confidence. Recent federal budget measures aimed at reducing tax incentives for property investment have contributed to a reassessment of the housing market outlook and banking sector valuations.
Although the RBA officially does not target asset prices, economists note that policymakers closely monitor housing and stock markets because of their influence on consumer spending and broader economic conditions.
The moderation in property prices may provide the central bank with additional flexibility as it balances inflation risks against slowing economic growth.
For now, uncertainty continues to dominate the debate. With inflation easing, unemployment rising, and financial markets sending mixed signals, the RBA faces one of its most challenging policy decisions in recent years.
Whether policymakers choose to maintain rates, raise them further, or begin cutting remains unclear. However, economists agree that the coming months will be critical in determining whether Australia can avoid a sharper economic slowdown while keeping inflation under control.
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