On my way to Italy, I couldn’t resist reading the RBA decision. No surprises on the headline: the cash rate stayed at 3.60% for the third month running. What stood out was the tone. The statement suggested a central bank increasingly concerned about inflation.
That did little to cool talk of a rate hike next year. In fact, interest-rate markets shortened the odds of tightening in 2026 after the statement noted that ‘recent data suggest the risks to inflation have tilted to the upside’ and there are ‘some signs of a more broadly based pick-up in inflation.’
The RBA remains cautious and indicated uncertainty about how much weight to place on the new monthly inflation measure, given its limited history. Some of the recent pick-up in inflation may prove temporary, so the RBA will continue monitoring the data closely and take time to assess the persistence of inflationary pressures.
Its characterisation of the economy was upbeat, pointing to an environment where “activity continues to recover” and labour market conditions remain “a little tight.” The board added that the pick-up in momentum has been stronger than anticipated, particularly in the private sector, and if it continues, it could add to capacity pressures.
Our view is that the RBA has finished its rate-cutting cycle and will remain on hold through 2026. However, today’s statement clearly leaves the door open for a possible rate hike next year if inflationary pressures persist. A rate hike can no longer be ruled out.
