RBA Holds Steady, Inflation Concerns Keep Cautious Tone

The Reserve Bank of Australia (RBA) kept its policy rate unchanged during its latest meeting on Tuesday, in line with broad market expectations. However, the accompanying statement struck a more cautious tone, reflecting renewed concern over persistent inflation pressures.

• Cash Rate: The RBA Board decided to leave the official cash rate unchanged at 3.60 per cent.
• Consensus: This decision was unanimous and in line with near-universal market and economist expectations, especially following the recent, hotter-than-expected inflation data.

Key Takeaways from the RBA Statement

The official statement accompanying the decision was notable for acknowledging renewed inflationary pressures while maintaining a cautious, data-dependent stance.

• The RBA confirmed that “Inflation has recently picked up.” The statement specifically noted that the latest quarterly data showed that trimmed mean inflation (the preferred core measure) rose to 3.0 per cent over the year in the September quarter, which was “materially higher than expected” and pushed it to the very top of the RBA’s 2-3% target band.
• The Board observed that “Domestic economic activity is recovering” and the housing market is “continuing to strengthen,” suggesting that the three recent interest rate cuts are now having an effect on stimulating private demand.
• The labour market remains “a little tight,” despite the unemployment rate ticking up slightly (to 4.5% in September).
• Governor Michele Bullock, in her post-meeting press conference, reiterated that the Board’s future decisions will be data-dependent and that it remains “alert to the heightened level of uncertainty about the outlook in both directions.

Market Implication on Australian Dollar

The Australian Dollar (AUD) showed a muted to mildly defensive reaction following the announcement, as the decision was fully priced in. However, the RBA’s acknowledgment of stronger demand and stickier inflation signaled that further rate cuts are unlikely in the near term.

Ultima Markets Analyst Shawn Lee described the decision as a “hawkish hold,” noting that expectations for another rate cut later in 2025 have largely evaporated. While this could lend medium-term support to the AUD, near-term performance remains capped by broad U.S. Dollar strength and cautious risk sentiment.

At the time of writing, AUD/USD was trading near 0.6520, hovering close to the key psychological level of 0.6500.

What’s Next?

Since the RBA is entirely data-dependent, the focus shifts immediately to the two major economic releases that will determine the outlook for inflation and the job market.

• October CPI (due mid-November): This report will be critical in confirming whether inflationary pressures continue to accelerate or begin stabilizing. A further rise in the trimmed mean CPI could strengthen the case for policy restraint and delay any rate-cut expectations.
• November Labour Force Report: The job market remains the backbone of the RBA’s inflation outlook. A sustained uptick in unemployment would ease wage-driven inflation risks, while stronger job gains could reinforce the argument for holding policy steady longer.

Disclaimer

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