On Melbourne Cup day, the RBA held off on reducing borrowing costs for mortgage holders, with the official cash rate remaining steady at 3.60%.
With inflation surging in the latest quarter, few were surprised by today’s news, delivered as punters prepared to watch the big race down south at Flemington.
‘The Board’s judgement is that some of the increase in underlying inflation in the September quarter was due to temporary factors,’ the RBA said today.
‘The central forecast in the November Statement on Monetary Policy, which is based on a technical assumption of one more rate cut in 2026, has underlying inflation rising above 3 per cent in coming quarters before settling at 2.6 per cent in 2027.’
So, while the RBA remains watchful, what’s clear is that the September quarter figures, released last week, paint a somewhat worrying picture right now.
Annual inflation came in at 3.2% – above market forecasts following a 1.3% lift for the quarter.
More notably, the RBA’s preferred gauge – the trimmed mean measure of core inflation – rose 1.0%, taking the annual rate from 2.7 to a slightly concerning 3.0%.
Bear in mind, also, that the RBA’s preferred band for inflation is 2–3%, so these figures are stressing the limits of this range.
Still, from its Martin Place HQ, the RBA views the spike as temporary – driven largely by higher electricity costs – rather than a trigger for short-term tightening.
Most analysts agree, expecting Martin Place to hold rates steady next month and reject any ideas of a knee-jerk Christmas rate rise.
This all comes after three 0.25% cuts earlier this year.
Next year, however, could prove a different race altogether. CBA economist Belinda Allen has cautioned that the RBA may need to lift rates again by mid-2026.
But Oxford Economics Australia remains upbeat, forecasting a couple of reductions next year that could bring the RBA cash rate back to a ‘neutral’ 3.10% (a rate that would neither stimulate nor restrict economic growth).
To use a Cup metaphor, a rate cut is still in the mounting yard, but no one is calling it into the barriers just yet.
‘The recent data on inflation suggest that some inflationary pressure may remain in the economy,’ cautioned the Central Bank, before adding a slightly more optimistic note in relation to the global outlook, noting that ‘uncertainty in the global economy remains elevated but so far there has been minimal impact on overall growth and trade.’
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Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!