Are RBA Rate Cuts Coming to an End?

Policymakers signalled a need for continued caution, pointing to lingering inflation pressures and a labour market that remains tight. The Australian dollar reacted positively, with AUD/USD climbing 0.35% on the day. Since the start of the week, the pair has gained just over 0.80%.

The RBA Notes that the Slowdown in Inflation Is Losing Momentum

Australia’s inflation story is becoming more complicated, with the Reserve Bank of Australia (RBA) cautioning that the pace of disinflation is beginning to stall. After two years of steady progress in bringing price growth down from its 2022 peak, recent data suggest that the road back to price stability may be bumpier than expected.

Headline inflation and the trimmed mean measure both sat within the RBA’s 2–3% target range during the June quarter. On paper, that marks a significant achievement: consumer price inflation rose just 2.1% over the year to June 2025. Key categories such as Housing (+1.2%), Food and non-alcoholic beverages (+1.0%), and Health (+1.5%) were the main drivers of quarterly increases.

However, the RBA has flagged concerns that the downward momentum is weakening. The monthly CPI indicator climbed 3.0% in the 12 months to August, up from earlier readings, with Housing (+4.5%), Food (+3.0%), and Alcohol and tobacco (+6.0%) leading the gains. Rising electricity costs in particular are putting renewed pressure on households and risk pushing inflation back to the top of the band.

Core inflation, which strips out volatile items, remains broadly consistent with the RBA’s objectives. Yet policymakers warn that partial and volatile data for the September quarter point to inflation running hotter than what was forecast in the August Statement on Monetary Policy. That raises the possibility that the central bank’s victory against price pressures is not yet secured.

The stakes are high: the release of third-quarter CPI data on October 29 will be pivotal. If the data confirm that inflation has re-accelerated, the RBA may be forced to hold off on another interest rate cut at its November meeting—or even reconsider the extent of its easing path. For now, uncertainty dominates the outlook, with the central bank caught between evidence of cooling price growth and fresh signs that inflation’s slowdown is losing steam.

What Are Big Banks Expecting from the RBA Now?

The Reserve Bank of Australia’s decision to hold the cash rate at 3.6% has intensified debate about whether the central bank’s easing cycle is nearing its conclusion. While markets had been pricing in additional cuts this year, the latest signals from policymakers—and from major banks—suggest that the scope for further reductions may be limited.

NAB has struck one of the more cautious tones, arguing that the next phase of monetary policy will depend heavily on incoming data. “Looking ahead, spending and labour market data—alongside the full quarterly CPI release—will be highly consequential for the policy outlook,” NAB economists said. For now, the bank expects the RBA to remain on hold until May 2026, when it projects a final 25 basis point cut. This implies a prolonged pause, hinting that the current cash rate may already be close to its floor.

ANZ takes a slightly more dovish view, still leaving room for a November cut. However, the bank has reiterated that its April forecast of a 3.35% terminal cash rate remains intact. “Our confidence that this represents the end point for this cycle remains higher than our conviction on the exact timing,” ANZ analysts noted. Importantly, they highlighted that absent an economic “shock,” the RBA’s post-meeting statement suggests the central bank is indeed close to wrapping up its easing campaign.

HSBC, meanwhile, has emphasised the balance the economy currently enjoys. For the first time in a decade, inflation is sitting comfortably within the RBA’s 2–3% target band, unemployment is steady at levels consistent with full employment, and growth is on an upswing. From HSBC’s perspective, this “sweet spot” provides little urgency for further cuts, reinforcing the idea that policy is already sufficiently accommodative.

Retailers have a different view on a rate cut, seeing it as a lifeline for the holiday season. Both the Australian Retailers Association (ARA) and the National Retail Association (NRA) argue that another rate cut before Christmas would stimulate the discretionary spending that many businesses desperately need to make up for a slow year. For many, the holiday period is when they earn as much as two-thirds of their annual profits.

They warn that the decision to keep rates steady could dampen demand at a time when businesses are already under pressure from rising rents, wage growth, surging energy and insurance costs, persistent supply chain challenges, and even a spike in retail crime.

Taken together, the views of Australia’s biggest banks and industry groups point to a common conclusion: while a near-term cut cannot be ruled out, the easing cycle is clearly approaching its limits. The RBA may prefer to wait for further clarity on inflation and the labour market before acting again, signalling that the end of rate reductions—at least for now—may be in sight.

Sources: CNBC, Wall Street Journal, Reuters, ABC News