Why the RBA rate pause in 2026 looks likely

It has been one of those weeks where a few things moved at once. The jobs numbers came out mid-week and they were softer than expected. Unemployment ticked up to 4.5 per cent and the economy shed jobs for the first time this year. The Reserve Bank’s minutes and a speech from their chief economist both pointed to the same thing: three rate rises in four months is probably enough for now, and the bank wants to see how that flows through before doing anything else.

We would not call the rate rise cycle finished, but we think it is likely close to done. Wherever rates land, they are probably going to sit there for a while. That is actually a useful thing to plan around, more useful than guessing whether there is one more move or not.

The Middle East situation is still the background variable driving most of this. Oil costs are still elevated, which is why inflation is still running hot in the near term. But the signals over the past week or so suggest a resolution is getting closer, not because anyone has become more agreeable, but because the pressure to resolve it is building from all sides. Markets are starting to price that in.

What the budget means for planning structures

On the budget, our overall read is that the headline measures are not a major impost for the kinds of households we work with. The bigger story is what the budget means for planning structures. We covered the CGT and negative gearing changes in detail last week — that context is worth reading alongside this update.

Some of the changes, particularly around how income flowing through certain structures is taxed, are still not fully worked through in the legislation. We are watching a few areas where clients who hold particular structures for legitimate reasons, including structures set up to protect a vulnerable family member, may be caught in ways that were probably not the intention. The estate planning lawyers we work with have flagged the same concerns.

We expect amendments will follow once the detail is tested, but until that happens it sits as an open question worth reviewing.

What to do if you hold a trust structure

If you are in that position, or unsure whether you are, please reach out and we will talk through it. This is exactly the kind of thing that is easier to get ahead of than to clean up.

End of financial year is five weeks away

The contribution caps lift on 1 July, which opens some planning windows that are not available after that date. If you have not yet had your pre-EOFY conversation with us, now is a good time to lock it in. Our earlier update on what the rate rises mean for your finances covers the cash flow side in more detail.

Some actions — particularly around concessional contributions, spouse contributions and catch-up rules — need to happen before 30 June, not after. The window is real and it closes.

If anything here raised a question, get in touch. That is exactly what we are here for.

This update is general in nature and is not personal advice. For guidance that fits your situation, please speak with your HFI adviser. You may also need specialist legal or tax advice.

Weekly context

Four key numbers shaping the RBA’s outlook this week

Unemployment lifts to 4.5 per cent as the economy sheds jobs

The ABS released the April labour force data on 21 May. The unemployment rate rose from 4.3 to 4.5 per cent, and the economy lost 18,600 jobs over the month. It was the first drop in employment this year, and the rate is now above what both Treasury and the Reserve Bank had been forecasting.

The labour market is starting to show the weight of higher rates, which is what the RBA has been watching. It does not mean things are falling apart, but it is a clear signal the economy is slowing down.

RBA rate pause in Australia: the minutes point to a hold in June

The minutes from the Reserve Bank’s 5 May meeting were released on 19 May. The board lifted the cash rate to 4.35 per cent at that meeting, but the minutes make clear the decision was meant to give the bank room to observe. Chief economist Sarah Hunter said the same day that headline inflation is expected to peak at 4.8 per cent in the June quarter before coming back down as oil and travel costs ease off.

If you have a variable rate mortgage, the most likely outcome in June is no change. Nothing is locked in until the decision lands, but the tone from the RBA this week was measured and patient rather than urgent.

Wages grew 3.3 per cent in the year to March, but inflation is running ahead

The ABS Wage Price Index for the March quarter was released on 13 May. Wages rose 0.8 per cent over the quarter and 3.3 per cent over the year, with the private sector moving faster than the public sector. Wage growth is still running below headline inflation, which means real wages are going backwards as fuel and other costs flow through.

If your pay rise this year was around three per cent, you are likely going backwards in real terms. Worth factoring into household budgeting through to the end of the year.

Forecasters flag a softer year ahead for housing

Investment bank Morgan Stanley published research this week suggesting the combined effect of the budget’s property tax changes and three rate rises this year could put meaningful downward pressure on the housing market. AMP chief economist Shane Oliver is forecasting price growth slowing to around three per cent this year, with the possibility of negative growth in the year ahead.

Forecasts vary widely and a slower property market mostly affects timing decisions rather than long-term value. For existing owners with steady incomes, there is not a lot to act on here.