RBA Holds Rates as Cost-of-Living Pressures Persist
The Reserve Bank of Australia (RBA) has kept the cash rate on hold at 3.6%, as widely expected. While this decision may feel like a reprieve for borrowers, the RBA’s latest Statement on Monetary Policy paints a mixed picture for households and investors.
The Good News
- Economic Growth: The RBA expects the economy to grow at around 2% annually, supported by housing investment. Government targets for new housing remain ambitious, but construction activity is expected to pick up.
- Employment Stability: Despite last month’s spike in unemployment to 4.5%, the RBA forecasts the jobless rate will remain steady just below that level for the next two years.
- Productivity Gains: Worker productivity is improving, albeit modestly.
The Challenges Ahead
- Inflation Pressures: The September quarter inflation figure was “notably higher than expected.” The RBA now forecasts inflation to peak at 3.7% by June next year, which means cost-of-living pressures will persist.
- Wage Growth Lagging: Wages are expected to rise by only 3%, meaning real purchasing power could decline again in 2026.
- Interest Rate Outlook: Markets have slashed expectations for rate cuts. The cash rate is now tipped to bottom out at 3.3% next year, just one small cut from current levels. Some economists believe the next move could be up, but not until 2027.
Interest Rate Outlook: Cuts Off the Table?
Markets have sharply revised expectations for rate cuts. The cash rate is tipped to bottom out at 3.3% next year, just one small cut from current levels. Some economists now believe the next move could be up, but not until 2027.
Craig Phillips, Senior Financial Adviser, warns:
“Borrowers shouldn’t assume relief is coming soon. With inflation staying sticky and wage growth subdued, the RBA is signaling a long period of steady rates. For households, that means managing cash flow and debt is more critical than ever.”
What Does This Mean for You?
- Mortgage Holders: Competition among banks has kept mortgage spreads lower than pre-pandemic levels, but this may not last. Variable rates could be as low as they’ll get for the next couple of years.
- Investors: With inflation staying higher for longer and limited rate cuts ahead, expect continued pressure on household budgets and cautious consumer spending.
- Planning Ahead: This environment reinforces the importance of cash flow management, debt strategies, and long-term investment planning. If rates rise in 2027, those with high leverage could feel the pinch.
The RBA’s stance signals a prolonged period of steady rates, with inflation remaining sticky. Now is the time to review your financial strategy—whether it’s refinancing, adjusting investment allocations, or planning for future rate hikes.