The Reserve Bank of Australia has kept the cash rate on hold at 3.6 per cent and lifted its inflation forecast in a blow to mortgage holders hoping for near-term mortgage relief.
A sharp rise of inflation in the September quarter hurt the prospect of near-term rate cuts.
Trimmed mean inflation – the middle 70 per cent of price changes core to the RBA’s decision – rose to three per cent, hitting the top of the central bank’s 2-3 per cent target band.
The RBA noted the recent inflation jump, which was higher than anticipated in its August forecast, was cause to adjust its predictions.
It said inflation will peak at 3.7 per cent in mid-2026, higher than its previous forecast of 3.1 per cent, while trimmed mean inflation was revised to peak at 3.2 per cent next year.
This is more than half a per cent above its former 2.6 per cent estimate.
The central bank noted there was a need for caution in holding rates as it will take “some time” to see the impact of earlier rate cuts by the RBA.
“Given this, and the recent evidence of more persistent inflation, the Board judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve,” the RBA’s Monetary Policy Decision reads.
Despite the concern about inflation’s recent lift, Ms Bullock said the central bank was still confident inflation would come back down.
“I think at the moment, we’re still confident that inflation is going to come down, and we’ve got employment at a pretty good place,” she told reporters.
Treasurer Jim Chalmers pointed to global economic uncertainty when explaining the rise of inflation.
“Inflation ticked up in September for every major advanced economy, except the United Kingdom where it was flat,” Mr Chalmers said in a statement.
“In the face of substantial global economic uncertainty, Australians have made remarkable progress together in the economy.”
RSM economist Devika Shivadekar said the RBA was likely to remain cautious despite holding the cash rate on Tuesday.
“Our base case remains that the RBA will stay on hold until February 2026, but the risk profile has shifted toward a longer plateau rather than an early easing cycle,” Ms Shovadekar said in a statement.
“The RBA has made it clear: it prefers a data-dependent approach over giving forward guidance.”
Following the release of the September inflation data, the chances of a rate cut dived.
The odds of a cut on Tuesday were at about five per cent prior to the RBA’s decision while the chances of a hold were about 95 per cent.
The hold comes despite the unemployment rate lifting to 4.5 per cent in September.
After the unemployment data was released in mid-October, chances of a rate cut in November lifted from 40 per cent to about 60 per cent.
Ms Bullock said the RBA board only considered holding rates at its Tuesday meeting.
“We basically just talked about holding and the reasons to hold, and then discussed strategy moving out, depending on what way,” she said on Tuesday.
Some major banks changed their rate forecasts after the September inflation data was released.
None of the major banks predict a cut this year as Commonwealth Bank of Australia and Westpac both shifted their stances.
ANZ is predicting one more cut this cycle at the RBA’s February meeting, while NAB expects a cut in May.
CommBank does not expect further cuts this cycle and Westpac is reviewing its forecast.
The RBA has cut the cash rate by 0.25 per cent on three separate occasions since the beginning of 2025.
It followed the central bank holding the cash rate at 4.35 per cent for almost a year and a half to stamp out post-pandemic inflation.