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In a widely predicted move that will frustrate mortgage holders, the RBA held the official cash rate at 3.60 per cent, citing higher-than-expected inflation. The RBA has now held interest rates for two meetings in a row. In a unanimous decision, the central bank chose to hold interest rates thanks to higher inflation, although the bank doesn’t expect inflation to stay higher over the long-term. “The board’s judgment is that some of the increase in underlying inflation in the September quarter was due to temporary factors,” the RBA board said in its statement. But in some welcome news for homeowners, the RBA flagged further interest rate relief in the new year. “The central forecast in the November Statement on Monetary Policy, which is based on a technical assumption of one more rate cut in 2026, has underlying inflation rising above 3 per cent in coming quarters before settling at 2.6 per cent in 2027,” the RBA statement said. The RBA also assumes the labour market remains a “little tight”, despite October’s figures showing unemployment reached a four year high. “But measures of labour under-utilisation remain at low rates, job vacancies are still at a high level and business surveys and liaison continue to suggest that a significant share of firms are experiencing difficulty sourcing labour,” the board said. Oxford Economics Australia head of economic research and global trade Harry Murphy Cruise told NewsWire that the RBA was “stuck between a rock and hard place”, with its dual mandates pulling in opposite directions. “We have inflation higher than we want, with the natural response to keep interest rates higher, but now we have unemployment rising with the policy response to cut interest rates,” he said. “Ultimately, inflation is the most immediate concern for the RBA. “That said we still expect two more interest-rate cuts this cycle, one coming in February and one in May 2026 and that being more of a reflection of the weaker labour market.” The unemployment rate has jumped to 4.5 per cent, its highest level since November 2021, while inflation has climbed to its highest level since June 2024. Before Tuesday’s meeting, AMP deputy chief economist Diana Mousina said the RBA would hold interest rates following an “economic horror show” when inflation re-accelerated faster than experts forecast. The annual rate now sits at 3 per cent, higher than the 2.8 per cent markets were expecting. ”The forecast miss may look small by just looking at the figures at only 0.2 percentage points, but for inflation data, this constitutes a big miss,” she said. The RBA’s final chance to cut interest rates in 2025 will be after its December 8-9 meeting. More to come
