Interest rates are expected to remain unchanged for the rest of the year, with a slight possibility of a rate increase if inflation stays above the central bank’s 2% to 3% target range, according to non-bank lender Capspace.

Tim Keith managing director of Capspace, said this outlook was influenced by a tight labour market, which continues to drive up wages and services inflation.

The Australian Bureau of Statistics (ABS) has reported that the seasonally adjusted unemployment rate dropped by 0.1 percentage point to 4% in May. Employment rose by nearly 40,000 people, and the number of unemployed fell by 9,000, leading to the lower unemployment rate.

“The tight labour market will keep up with pressure on wages costs and services inflation, which, along with the rising cost of rent and housing, will keep inflation elevated, which is likely to see the Reserve Bank of Australia (RBA) keep rates on hold at its June meeting and for the remainder of this year,” Keith said.

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