RBA Holds Rates Steady Amid Inflation Concerns
SYDNEY – The Reserve Bank of Australia (RBA) decided to keep its cash rate steady at 3.60% during its policy meeting on Tuesday. This move was anticipated, given the recent uptick in inflation, robust consumer demand, and a recovering housing market.
After reviewing recent data, the RBA concluded that inflationary pressures might linger. The bank indicated it would revise its outlook as new data emerges.
Despite previous expectations for a rate cut, markets now see a slim chance of any reduction until May 2026. RBA Governor Michel Block commented during a press conference that while the current cash rate is seen as somewhat restrictive, it comes with uncertainties.
“We may not have further cuts. There could be additional reductions, but I think we haven’t lowered the rates significantly. So, there might not be a strong need to cut again,” Block stated.
The uptick in inflation suggests core rates may not return to the desired 2-3% range until late 2026, prompting the RBA to exercise caution regarding any further easing.
This predictability in the RBA’s stance led to a slight dip in the Australian dollar, valued at $0.6526. In contrast, bond futures dropped even more dramatically, with three-year government bond futures down five ticks, hitting a near five-month low.
Current swaps indicate only about a 10% probability of any policy shift in December, with some analysts suggesting the easing cycle might be over.
Labor Market and Economic Outlook
While the RBA has lowered rates three times this year based on quarterly inflation data, core inflation surged to 3% in the third quarter, driven by high costs in market services and housing, straying towards the upper end of the target range.
House prices saw their largest increase in over two years this October, suggesting that financial conditions are not as tight as previously assumed. The RBA remarked that a 3.6% cash rate is only slightly restrictive.
Complicating matters, the unemployment rate has risen to a four-year high of 4.5%, after remaining relatively stable for some time. Personal consumption recovery appears uneven at best.
Block downplayed the rise in unemployment, indicating that while the labor market is loosening, it still remains tight.
“The RBA hasn’t panicked about inflation yet, but it’s also not ignoring the pressure from rising inflation,” noted Sally Auld, chief economist at National Australia Bank. “Overall, the RBA is still on track for a soft landing, but it will take longer to stabilize GDP growth, full employment, and keep core inflation within those target ranges.”
Recommendations from analysts suggest the RBA might hold off any further rate cuts until May 2026, with the Commonwealth Bank of Australia suggesting that the current easing cycle has concluded. Meanwhile, Westpac has hinted at two additional cuts for the next year.
