There were no surprises from RBA Governor Michele Bullock and her Board at the September meeting, where the cash rate was left on hold at 3.6 per cent.
Nobody was expecting anything other than a hold, given the lack of concrete data since the August cut. The Reserve Bank has recently started releasing whether the Board voted for or against a move, and the split. At today’s meeting, the vote to hold was unanimous.
There are now only two meetings left in 2025, November and December, and it is anyone’s guess whether the RBA will cut rates for a fourth time this year. That decision will likely hinge on the all-important quarterly inflation data due at the end of October.
As always, we aim to provide a clear view of what the RBA is saying, the latest economic data, and how the big banks are interpreting it.
The first subheading of the RBA Statement, which always accompanies the 2.30pm rate decision, told mortgage holders all they needed to know: “The decline in underlying inflation has slowed.”
The Board noted that while inflation has fallen substantially since its 2022 peak, the pace of decline has eased. “Both headline and trimmed mean inflation were within the two to three per cent range in the June quarter. Recent data, while partial and volatile, suggest that inflation in the September quarter may be higher than expected at the time of the August Statement on Monetary Policy,” the statement read.
It also highlighted that private demand is “recovering a little more rapidly than expected, taking over from public demand as the driver of growth.” Private consumption in particular is lifting as “real household incomes rise and measures of financial conditions ease.”
“The housing market is strengthening, a sign that recent interest rate decreases are having an effect,” the Board said.
The overall assessment suggested a cautious stance on near-term rate cuts. “With signs that private demand is recovering, indications that inflation may be persistent in some areas and labour market conditions overall remaining stable, the Board decided that it was appropriate to maintain the cash rate at its current level at this meeting.”
They added that financial conditions have eased since the start of the year, but “it will take some time to see the full effects of earlier cash rate reductions.”
“The Board judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve.”
Recent inflation data point to renewed price pressures and a more cautious outlook for rate policy. In August, headline inflation rose to three per cent year on year, up from 2.8 per cent in July, its highest level in more than a year. The sharpest increase was in electricity prices, which jumped 24.6 per cent as state government rebates expired.
While the July and August monthly CPI releases don’t carry the same weight as quarterly figures, they suggest the next quarterly update will be higher than expected. That release comes a week before the November meeting, historically the RBA’s most active month for rate moves.
Cotality Research Director Tim Lawless says rising housing values were likely part of the RBA’s discussions.
“Since the first rate cut in February, housing markets around the country have seen a positive inflection, sending values 4.7 per cent higher since the first cut of the cycle on February 18th, according to Cotality’s daily Home Value Index. The gains can be seen across every capital city and rest-of-state region, reversing a softening trend in home values that was generally evident prior to February.”
RBA Group Senior Economist Eleanor Creagh added that earlier cuts had lowered mortgage repayments and boosted borrowing power. “This has helped to drive a synchronised housing market upswing, with demand building into the spring selling season,” she said.
“While affordability pressures remain, this year’s series of interest rate cuts, improved sentiment, and the October expansion of the Home Guarantee Scheme are expected to keep upward pressure on home prices in the months ahead. With stock on market constrained and new supply challenged, demand-side stimulus will intensify competition. The housing market is poised for further gains throughout spring, though the pace will vary across cities.”
The PropTrack Home Price Index showed another 0.5 per cent rise in September, the ninth consecutive month of growth.
All of the Big Four banks expected a hold in September. But while they had previously priced in a November cut, the higher August CPI has clouded that outlook.
“Overall, the post-meeting statement is a little more hawkish than we’d expected and heightens the risk evident after the August monthly CPI indicator that the November meeting passes without a rate cut,” ANZ’s Head of Australian Economics Adam Boynton wrote. ANZ still sees the cycle bottoming at 3.35 per cent, but says “the exact timing is a little less clear.”
Westpac shared a similar sentiment: “November cut far from assured but rate-cutting phase is not over.” Chief Economist Luci Ellis said the Board is giving itself “maximum optionality.”
“This means that our current base case of a cash rate cut in November is far from assured, though neither is it off the table. The longer the Board delays further cuts, the more likely it is that it will end up cutting by more than it currently envisages.”
NAB shifted most dramatically, pushing its forecasted cuts back to May 2026 after the stronger August inflation print.
CBA, meanwhile, took a middle ground. “This data adds tension to the economic outlook,” economist Harry Ottley said. “While we still expect the RBA to cut rates in November, today’s release shows that’s not a done deal.”
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