Australia’s central bank now sees core inflation staying stubbornly above its target band out to the middle of 2026 as consumer demand and house prices pick up faster than expected, seemingly limiting room for further cuts in interest rates.
The Reserve Bank of Australia was widely expected to hold rates at 3.60% on Tuesday as an uncomfortably high reading on third-quarter inflation crushed any hopes of a cut. It had eased policy three times this year in February, May and August.
In its quarterly Statement on Monetary Policy, the RBA said recent data — including stronger economic growth, sticky inflation and a still tight labor market — suggested there was less capacity in the economy than previously thought.
“These indicators paint a mixed picture of financial conditions, consistent with policy now being close to neutral estimates - indeed, the cash rate is now below some models’ central estimates of the neutral rate,” said the RBA.
It now expects underlying inflation — a trimmed mean measure closely watched by the RBA - to accelerate to 3.2% by the end of the year, from the current 3%. That was a sharp upward revision from the previous forecast of a steady 2.6% in coming years.
