The Reserve Bank of Australia is keeping interest rates steady, stating it will only consider cutting them if the job market shows significant weakening. Although recent inflation data remains at the higher end of its target range, the central bank believes current financial conditions are only mildly restrictive, which may not justify further rate reductions.
Currently, the official cash rate is steady at 3.6%, with the RBA closely monitoring inflation, employment and consumer activity. A noticeable decline in job growth or consumer spending could lead to rate cuts, but such trends have not yet emerged. The labour market remains resilient, with unemployment unexpectedly falling to 4.3% in September, countering expectations of a slowdown that might encourage the RBA to ease policy.
The RBA’s cautious approach reflects ongoing uncertainty around how much its monetary policy is impacting the economy. Economists note that previous rate cuts, totalling 75 basis points since February, have not yet produced the growth boost many had anticipated. There are indications the economy is operating near full capacity, which limits its ability to absorb demand-driven inflation.
Looking forward, inflation is expected to drop to 2.6% by the end of 2027, assuming about 30 basis points of further rate cuts. However, if rates remain unchanged, inflation could fall to 2.5%, offering a strong reason for the RBA to maintain its position. Some market analysts now think the next move could be a rate increase, given capacity constraints and stronger-than-expected demand are keeping inflation pressures elevated.
