RBA Rate Cuts in 2026? What Falling Clearance Rates Actually Tell Us.

For much of this year, the Reserve Bank of Australia’s interest rate problem looked relatively simple, even if painful.

Inflation was too high. The economy was still absorbing demand. The labour market, while no longer booming, had not cracked. And after three consecutive rate rises in 2026 — in February, March, and May — the central bank appeared to be leaning against a familiar risk: stop too early, and inflation could become harder to contain.

But ahead of this week’s RBA meeting on 15–16 June, the question has changed. It is no longer simply whether the Reserve Bank will raise rates again. It is whether the case for doing so has quietly weakened enough that the tightening cycle is already over.

The answer, increasingly, appears to be yes. Not because inflation has been defeated, and not because the economy has fallen into a downturn, but because enough parts of the economy are now cooling at once. The labour market is losing momentum. Consumer spending is slowing. Housing is weakening. Market pricing has softened.

That does not mean rate cuts are close. It means Australia may have entered the waiting phase of the cycle.

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From “one more hike” to “maybe no more hikes”

The change in expectations has been notable.

After the RBA’s May meeting — when the Board voted 8–1 to lift the cash rate by 25 basis points to 4.35% — markets were still leaning toward further tightening. OIS pricing implied around 35 basis points of additional increases by December. In plain English, that meant markets were pricing one more rate rise, with some chance of a second.

That has now faded substantially. A Reuters poll published on 12 June found that 42 of 45 economists expect the RBA to hold at 4.35% on 16 June. Finder’s survey of more than 40 economists put the figure even higher, with 97% forecasting a hold. Markets still think the next move, if there is one, is more likely to be up than down — with market pricing around 70% probability of a hold and roughly 20% of a fourth hike to 4.60%. But the conviction has weakened considerably.

NAB Chief Economist Sally Auld, writing in the bank’s 9 June RBA Watch, summed up the emerging consensus with that observation. Westpac, previously the most hawkish of the major banks, revised its June hike forecast and now expects two further increases — if they come — in August and September. Independent economist Saul Eslake put it plainly: “They’ve raised rates three times. They’ve taken back all that they gave last year. I think they’ve got good reason to sit this one out.”

The reason is not one single data point. It is the accumulation of several softer signals.

This is the problem for the RBA: inflation still argues for vigilance, but the real economy is beginning to argue for patience.

The labour market is not breaking, but it is cooling

The labour market is often the last piece of the economy to turn. Businesses may cut discretionary spending, delay investment and slow hiring long before unemployment rises sharply. That is why the ABS April Labour Force Survey, released 21 May, carries particular weight.

The numbers were unambiguous in their direction. The unemployment rate rose to 4.5% — up 0.2 percentage points from March and the highest reading since 2021. The number of unemployed people increased by 33,000 to 692,500. Total employment fell by 18,600, with both full-time (down 10,700) and part-time (down 8,000) declining. Youth unemployment jumped 0.9 percentage points to 11.1%. The underutilisation rate — combining unemployment and underemployment — has reached 10.2%, a figure that substantially undercuts the RBA’s claim that the labour market remains tight.

On the surface, Australia still has a functioning labour market. Job postings remain elevated across major sectors. This is not a recessionary employment picture.

But the deeper story is less reassuring. LinkedIn’s Economic Graph points to a low-mobility labour market: job postings are increasing, but actual hiring is falling — down 9% year-on-year — and the weakness is broad-based across financial services, manufacturing, professional services, healthcare, technology and retail. Education is the only major sector showing modest hiring growth. Attrition is falling even more sharply, down 21% overall. Employees are choosing the safety of their current jobs over the uncertainty of moving. That is a confidence signal, not a strength signal.

For the RBA, a cooling labour market reduces the risk that wages and household demand keep inflation elevated. The Wage Price Index for the March quarter rose 0.8% seasonally adjusted, or 3.3% annually — moderating, but still above the long-run average. A central bank can keep hiking when the labour market is hot. It becomes harder to justify when hiring is weakening, workers are staying put, and unemployment is drifting higher.

Housing is becoming a bigger part of the rate story

The housing market may be even more important than the labour data in shaping the RBA’s calculus. Australia’s economy is unusually sensitive to housing. Higher rates do not just affect mortgage repayments — they affect borrowing capacity, household confidence, investor appetite, construction activity, credit growth and consumer spending. When housing slows, the effect spreads.

The auction data tells the story plainly. As of the weekend of 31 May–1 June, the national weighted average clearance rate fell to 51.0% — well below the 65.3% recorded over the same weekend in 2025. The deterioration across the major capitals has been sharp:

The 2022 downturn, for reference, triggered home price falls of 8% in Sydney, 6.1% in Melbourne and 9.8% in Brisbane before the RBA pivoted. The Cotality Home Value Index slowed to 0.3% in March, with Sydney and Melbourne already recording modest monthly price declines. CBA has downgraded its home price forecasts. SQM Research data shows asking prices stalling amid a surge in new listings.

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This is not just about property prices. It is about financial conditions. Higher interest rates, affordability constraints and proposed policy changes to negative gearing and capital gains tax have collided with borrower psychology. CBA expects investor lending to slow materially later this year as the tax policy changes take hold. That would reduce credit growth and soften housing-related activity more broadly.

This is why the RBA may not need to hike again to tighten conditions further. Some tightening is now happening through the market itself.

The consumer is also slowing

The Australian consumer has been under pressure for some time. Mortgage repayments have risen significantly. Rents remain elevated — housing inflation of 6.3% annually is the largest single contributor to the April CPI, driven by electricity costs up 22.5% over the year and new dwelling costs up 4.7%. Even households that are still employed are behaving more cautiously.

Q1 GDP confirmed the squeeze. Household consumption contributed only 0.3 percentage points to quarterly growth — a subdued reading that understates the pressure on discretionary budgets. Government spending weakened. Net trade subtracted 0.8 percentage points from the result, as fuel and data centre imports surged. Real GDP per capita fell 0.1% in the quarter and is only 1% higher than a year ago — a figure that captures how little material improvement most households have actually felt.

Slower spending reduces revenue growth. Slower revenue growth makes firms more cautious on hiring. Cautious hiring reduces worker mobility. Lower mobility weighs on wage pressure. The cycle becomes self-reinforcing, and it is now operating in Australia. The economy is not falling off a cliff. But the direction of travel is unambiguously softer.

Inflation still stops the RBA from sounding relaxed

None of this means the RBA can declare victory.

April’s headline CPI print of 4.2% annually was below consensus, but the fall was largely driven by a one-off factor: the Federal Government’s fuel excise reduction on 1 April, which cut automotive fuel prices 7.0% in a single month. Stripping out fuel, the picture is less encouraging. Trimmed mean inflation — the RBA’s preferred underlying measure — rose to 3.4% annually in April, up from 3.3% in March, its highest level since late 2024. That is the number the RBA watches most closely, and it moved the wrong way. The Federal Government’s own Budget forecast has inflation peaking at 5% in the middle of this year.

The conflict in the Middle East adds another layer of uncertainty. Higher fuel and commodity prices have already materialised in transport costs. If oil prices rise materially again, inflation could prove harder to bring down than the current trajectory suggests.

A hold decision in June may be straightforward — the Board’s May statement explicitly flagged that policy works with lags and that further data was needed before acting again. But a dovish statement is not guaranteed. The RBA will want to preserve the option to hike at August’s meeting on 10–11 August if the June quarter CPI, due before then, surprises to the upside. Eslake put it directly: “The August meeting is live. Depending on what the data says, there could be an increase in rates again at that meeting.”

This is the delicate balance: the RBA has enough evidence to pause, but not enough evidence to relax.

What the RBA is likely to do next

The most likely path for interest rates this year is sideways.

A June hold looks almost certain. Forty-two of 45 Reuters-surveyed economists, 97% of Finder’s panel, and market pricing all point in the same direction. The case for an immediate fourth increase has weakened sharply. The RBA has already delivered 75 basis points of tightening this year alone — the most in a single calendar year in over a decade — and monetary policy works with a lag. Some of the effects of those increases are still flowing through the economy.

But August is genuinely live. Westpac has flagged August and September as the window for any further moves. NAB, by contrast, has shifted to greater conviction that the next move is down, while forecasting a gradual easing cycle that reaches 3.6% by end of 2027.

The central bank’s June message is likely to be cautious rather than celebratory: rates are on hold, inflation remains too high, the economy is slowing, and the Board is prepared to respond if needed. No move, but no surrender.

Are rate cuts coming this year?

Probably not.

NAB’s forecast has the cash rate reaching 3.6% by end of 2027 — a gradual easing cycle, but a 2027 story, not 2026. A Reuters survey of 44 economists found 26 expect the cash rate to remain at 4.35% at end-September, while 18 project 4.60% or higher. Only a small minority see cuts before year-end. For households, that means mortgage relief may be slow to arrive. For businesses, financing costs may remain high. For property buyers, borrowing capacity is unlikely to improve meaningfully in the near term.

The end of rate hikes is not the same as the start of rate cuts. There can be a long pause between the two — and on current data, that is exactly where Australia appears to be heading.

The bottom line

Australia’s interest rate cycle appears to be shifting from tightening to waiting. The RBA probably does not need to raise rates on 16 June, and may not need to raise them again this year. Unemployment is at 4.5%, hiring is down 9% year-on-year, auction clearance rates are at or below 2022 downturn levels in every major capital city, and GDP grew just 0.3% in Q1 — the weakest result in a year.

But the RBA is unlikely to say the job is done. Trimmed mean inflation at 3.4% is still well above the 2–3% target band and moving in the wrong direction. The Budget forecast has inflation peaking at 5% mid-year. The August meeting remains a genuine decision point. In the meantime, borrowers waiting for relief should prepare for a longer wait than the headline numbers might suggest — and property buyers operating in a softening market should be especially careful about the price they pay.