Data released yesterday revealed Australia's unemployment rate fell to 5.1% in December, down from 5.2% in November.
The figures had many economists eating an increasingly familiar flavour of pie (humble) and wiping theoretical egg off their faces, with most predicting a rise to 5.3%.
This prediction, coupled with apparent poor retail sales over Christmas (which did not eventuate), had the majority of economists agreeing that February would see Australia's cash rate cut to a record 0.50%.
Prior to the unemployment figures being released, the chance of a cut hovered around 60%; this has now been revised to 25%.
So when will the RBA cut, if at all?
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No February rate cut
Firmly in the February 'hold' camp are Westpac, Commbank and ANZ.
Westpac Chief Economist Bill Evans said the unemployment rate decrease wasn't unprecedented but it was still enough to give the RBA reason to hold rates.
"Over the last five years there have been six occasions when the unemployment rate has fallen in back to back months by a total of 0.2% or more," Mr Evans said.
"However, it is sufficiently strong a signal for the Board, which has emphasised the labour market as a key policy driver, to opt for a deferment of the rate cut process pending further information."
Mr Evans said that 2020 would still see two cash rate cuts from the central bank, and the second would see the introduction of quantitative easing.
"Westpac now expects that the Reserve Bank will delay its next cut in the cash rate to April with the final cut to 0.25% occurring in August."
CommSec Chief Economist Craig James said the job market is in better shape than generally assumed and expected no change in the cash rate come February.
"The hope is that the job market will continue to tighten, and this will serve to push up wages and prices," Mr James said.
"The Reserve Bank can stay on the sidelines for now. But clearly the level of interest rates is already super-stimulatory."
ANZ rounded out the big four supporters of a hold in February.
Head of Australian Economics David Plank tweeted that ANZ had changed their call following the unemployment figures and no longer expected a February cut.
We’ve changed our RBA call following the good news in the December employment report. RBA no longer expected to cut in February. https://t.co/XV6tyIsuLr
— David Plank (@DavidPlank12) January 23, 2020
February rate cut
NAB remains all alone in holding firm on its prediction of a February cash rate cut.
Director of Economics Tapas Strickland conceded that the unemployment numbers made a cut less likely, but said the RBA remained some way away from its goals.
"As for the jobs figures, the further improvement in the unemployment rate will be a welcome development for the Reserve Bank and markets moved swiftly to reprice the chances of a February rate cut, now around a 25% chance compared to 60% previously," Mr Strickland said.
"While no doubt the timing of rate cuts for H1 2020 is less certain given the solid jobs figures, the RBA still remains some distance away from full employment and we still expect the RBA to cut rates in February as it downgrades its growth outlook on soft consumer data, amid ongoing labour market spare capacity and little inflationary pressure."
Attention turns to inflation
All eyes now look towards the Australian Bureau of Statistics (ABS) release of December quarterly inflation figures on 29 January.
The RBA has repeatedly its goal is getting inflation to 2-3%, with the index currently sitting at 1.7%.
Mr Evans said it's unlikely the new data will see the RBA hit its desired target.
"We expect that the Inflation Report, on January 29, will print 0.36% for the trimmed mean pushing the annual rate down to 1.5% from 1.6% – well short of the 2–3% target inflation range."
CommBank agreed and said most economists expect the data to show inflation well contained below the RBA's target.
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