Australia's central bank has today left its cash rate steady as expected at 3.6%, saying it was cautious about easing further given higher inflation, firmer consumer demand and a revival in the housing market.
Wrapping up a two-day policy meeting, the Reserve Bank of Australia said recent data suggested inflationary pressures could remain in the economy, adding that it would update its view as data evolves.
Markets had seen little chance of a rate cut this week following an uncomfortably hot reading on third-quarter inflation, and now see scant prospect of an easing until May next year.
At a press conference, Governor Michele Bullock said the central bank does not have a bias on policy and even though the current cash rate is still judged to be a little restrictive, it is fraught with uncertainties.
"It's possible there's no more rate cuts. It's possible there's some more but as I said earlier, we didn’t go as high, we might not have to come down as far," said Bullock.
The spike higher in inflation means the Reserve Bank of Australia does not see core inflation returning to the target band of 2-3% until the second half of 2026, a reason that policymakers are cautious about further easing.
The Reserve Bank of Australia has cut interest rates three times this year after assessing quarterly inflation data, but in the third quarter, core inflation surged to 3%, hitting the top of the 2-3% target band, as market services and housing costs stayed elevated.
Home prices jumped by the most in more than two years in October, adding to signs that financial conditions might not be as tight as thought. The Reserve Bank of Australia has said the cash rate of 3.6% was only slightly restrictive.
Complicating the picture for policymakers, the jobless rate spiked to a four-year high of 4.5% after a long period of holding largely steady. The consumer spending recovery also appears to be patchy.
Bullock said the labour market has eased but that there is still tightness, playing down the spike in unemployment.
"The RBA isn’t hitting the panic button on inflation just yet, but nor is it willing to fully discount the recent lift in inflationary pressures," said Sally Auld, group chief economist at the National Australia Bank.
"On net, the RBA's delivery of a soft landing still stands, but the combination of trend GDP growth, full employment and core inflation sustainably in the target band now takes longer to achieve," she added.
NAB expects the Reserve Bank of Australia to be on hold before a final cut in May 2026, while the Commonwealth Bank of Australia has said the current easing cycle is over. Westpac tipped two more cuts next year.
