The major bank’s expect the RBA will hold interest rates following hotter-than-expected inflation figures this week. (Source: AAP/Yahoo Finance)
A small handful of experts are still holding out hope the Reserve Bank of Australia (RBA) will cut interest rates at its November meeting this week. The cash rate is sitting at 3.6 per cent, with hotter-than-expected inflation figures pouring cold water on the widespread expectation of further relief this year.
All of Australia’s Big Four banks now expect the RBA will keep interest rates on hold for the rest of 2025, ruling out cuts in November and December. Commonwealth Bank believes this is the end of the road for rate cuts, while other majors are predicting just one more reduction.
NAB chief economist Sally Auld told Yahoo Finance mortgage holders would likely need to wait until mid-2026 for any monthly relief. That’s because the RBA will need more time to be comfortable inflation is normalising and coming back to the desired target.
RELATED
“Stuff’s happened that they weren’t expecting. So inflation’s a bit higher, the unemployment rate’s a little bit higher than they thought it might have been,” Auld said.
“So they’re just going to need time, I think, just to better understand some of those dynamics in the labour market and some of the story around inflation.”
Annual headline inflation rose 3.2 per cent in September, up from 2.1 per cent in June.
Trimmed mean rose 3 per cent, up from 2.7 per cent. This was in contrast to the RBA’s forecasts for underlying inflation to be 2.6 per cent by the end of December.
Do you have a story to share? Contact tamika.seeto@yahooinc.com
Jarden chief economist Micaela Fuchila is one of the outspoken voices still tipping a cut. She expects the RBA will shift its focus to the labour market, with the unemployment rate rising to 4.5 per cent in September.
“Employment growth has slowed and the unemployment rate is on the rise while inflation pressures remain contained,” she argued.
Macquarie University professor of economics Jeffrey Sheen is also expecting a cut. He believes the rise in the unemployment rate in September, along with the previous Q2 trimmed mean inflation rate of 2.7 per cent were “enough extra evidence” for a November cut.
He argued the recent increase in trimmed mean inflation to 3 per cent in Q3 was “largely expected” due to the expiry of government electricity rebates.
“Though the RBA Board will be concerned about the mixed messages, I expect them to cut the cash rate in recognition that the downside macroeconomic risks dominate,” he said.
Story Continues
Trimmed inflation has lifted to 3.0 per cent after falling for several months. (Source: ABS)
Sheen noted the economy had for some time this year been close to its longer run average for inflation, GDP growth and unemployment, which suggested monetary policy “should already be neutral” rather than mildly restrictive as it is now.
Sheen and Fuchila are among the minority of experts surveyed by Finder who are tipping a cut next week.
The majority of experts (86 per cent) expect a hold on Tuesday, including economist Saul Eslake who believes the latest inflation data has dealt a “fatal blow” to hopes of a November cut and reduced the chance of a February cut as well.
AMP chief economist Shane Oliver also expects the inflation figures will keep the RBA on hold, however he still expects higher unemployment and slower inflation “to drive a cut next year”.
Bendigo Bank chief economist David Robertson said the uptick in core inflation would likely see the RBA on hold for the rest of the year, noting 3.6 per cent was “slightly above neutral”.
“With more data we should still get one more cut in the cycle, in early 2026,” he predicted.
Two in three experts surveyed think we will see at least one more cut in the next 12 months.
The biggest proportion (34 per cent) are predicting a cut in February, followed by a cut in May (20 per cent).
Here’s what the Big Four bank’s economists are forecasting:
Westpac said it it can’t see another rate cut until May, and now also expects one all the way in August.
The banks’s Chief economist (and former RBA assistant governor) Luci Ellis said it’s clear “monetary policy is still somewhat restrictive” and “a 50bp adjustment to the cash rate from here can be reasonably seen as removing the remaining restrictiveness of policy.”
The RBA will announce its decision at 2.30pm on Tuesday, November 4. It has one more meeting remaining after that this year, on December 8 and 9.
Get the latest Yahoo Finance news – follow us on Facebook, LinkedIn and Instagram.