The RBA left the cash rate at 3.6% for the third meeting in succession, signing off for 2025 with a hawkish tilt that effectively signals the end of the line for the easing cycle. The hot September quarter CPI report continues to reverberate through the RBA, with inflation risks now 'tilted to the upside'. Strength in the economy and labour market has also raised uncertainty over the restrictiveness of interest rate settings heading into 2026. A total of 75bps of rate cuts were delivered through the year - the full effects of which are yet to play out. Governor Bullock said at the post-meeting press conference the likely outlook for policy was either an extended pause or higher rates. Markets are pricing in a 25bps hike by next June with a follow-up hike by September - a significant hawkish repricing from expectations for one further 25bps rate cut after the previous meeting in November.
Today's statement and press conference made clear that inflation is still driving monetary policy. With inflation reaccelerating in Q3, the RBA is waiting on additional data - the key question needing to be confirmed is whether one-off factors (including electricity rebates and other administered prices) were mostly responsible or if it more accurately reflected the underlying supply/demand balance in the economy. It is clear that the quarterly CPI (next due late January) is the key input for policy decisions, with the ABS having only just pivoted to the new monthly series.
Given the rise in inflation and the pick-up in economic activity, with domestic demand rising strongly in Q3 (1.2%), the statement noted uncertainty around 'the extent to which monetary policy remains restrictive'. Labour market conditions continue to be assessed as being on the tight side, and there remains caution around the easing in wages growth given that unit labour costs remain at elevated rates.
As the RBA now heads into its summer break, it will be closely watching the incoming data as well as developments offshore and in the markets. This will all feed into the RBA's next forecast round. The next RBA monetary policy meeting and the first in 2026 is on February 2.
