RBA Holds Rates Steady Amid Persistent Inflation Concerns
As widely anticipated, the Reserve Bank of Australia (RBA) has held the cash rate steady at 3.6%. The board unanimously agreed to maintain a cautious stance, citing persistent inflationary pressures and ongoing uncertainty both locally and globally.
Although borrowers may have hoped for some relief, the decision came as no surprise to economists or markets, following stronger-than-expected inflation data. The board's statement emphasised that while inflation has declined significantly since its 2022 peak, recent figures have shown a concerning uptick.
“Inflation has fallen substantially since the peak in 2022 […] but more recently, inflation has picked up,” the board noted, highlighting last week's September quarter figures as “materially higher than expected.”
Borrowers Left Waiting
For many mortgage holders, the decision marks another frustrating month. While three rate cuts earlier in the year provided some relief, they haven’t undone the significant rate hikes since mid-2022. The RBA’s statement suggests any further cuts are still some way off, with another board meeting scheduled for early December.
No Rate Cuts on the Horizon
Financial markets and major banks echo the RBA’s cautious outlook. Australia’s big four banks have already pushed back their expectations for the next rate cut to 2026, reflecting the view that inflation will take longer to return to target.
Market pricing also supports the prospect of a prolonged pause. Traders have dialed down expectations of near-term easing, with futures markets now pointing to only modest cuts through 2026. Some economists are even warning that rates might rise again in 2026 or 2027 if inflation doesn’t cool sufficiently.
Inflation Still Running Hot
Last week's inflation data showed headline inflation once again breaching the RBA’s 2–3% target band. The bank’s preferred measure, the trimmed mean, sits right at the top of that range.
Although prices for goods like furniture and electronics have softened, core expenses such as housing, insurance, healthcare, and education continue to climb. This stickiness explains the RBA’s reluctance to ease policy prematurely.
As the board stated:
“Recent data on inflation suggest that some inflationary pressure may remain in the economy […] Financial conditions have eased since the beginning of the year, but it will take time to see the full effects of earlier cash rate reductions.”
The RBA continues to stress the need for clear, sustained evidence that inflation is trending towards the midpoint of its target range—evidence that remains elusive.
Resilient Growth and Labour Market
Despite higher interest rates, economic growth has surprised to the upside. The Australian Bureau of Statistics reports GDP grew 1.8% in the year to June 2025—the strongest in two years. This growth has been underpinned by robust business investment and population increases, even as household spending remains subdued.
The labour market also shows resilience. Although unemployment edged up to 4.5% in September, it remains low. RBA Governor Michele Bullock recently described the jobs market as “a little tight,” with businesses still struggling to find workers—another factor adding pressure to wages and prices.
Until there is clearer evidence of economic cooling—such as slower wage growth or a more pronounced rise in unemployment—the RBA is unlikely to risk cutting rates.
Rick Maggi, Financial Advisor Perth, Westmount Financial