Hopes for an aggressive easing of monetary policy have hit a speed bump after the Reserve Bank of Australia (RBA) opted to hold the official cash rate at 3.60% and Governor Michele Bullock issued a stern warning that stubbornly persistent inflation may delay further rate cuts.

Following the RBA’s widely anticipated September decision to keep rates steady, Ms. Bullock indicated that recent data pointing to a reacceleration of price pressures, particularly in the domestic economy, raises concerns about the pace of the disinflationary process. This caution comes despite the Board having cut the cash rate three times earlier in 2025.

Inflationary Stubbornness Delays Easing

The RBA Governor pointed to stronger-than-expected August inflation figures and a recovery in private consumer demand as key reasons for maintaining a cautious stance.

“The decline in underlying inflation has slowed,” the RBA Board stated, noting that while headline and trimmed mean inflation remain within the 2–3% target range, recent partial data suggest September quarter inflation “may be higher than expected.”

In her subsequent press conference, Bullock emphasised the persistent nature of the price increases, warning households that cost-of-living prices have risen “permanently” and would not return to pre-COVID levels.

This messaging underscores the central bank’s vigilance against a rebound in consumer spending that could entrench inflation at an uncomfortably high level.

Outlook Uncertainty Shifts Market Forecasts

The Governor’s warning has prompted a significant shift in market and economist forecasts.

Bank Revisions: Major banks, including NAB, have revised their outlook, pushing back their expectation for the next RBA rate cut from late 2025 to well into 2026, citing the need for at least two or three more comfortable quarterly inflation prints.
Data Dependency: The RBA has made it clear that its next move—which will be announced in November—will be heavily data-dependent, awaiting the crucial September quarter Consumer Price Index (CPI) release at the end of October.
A “Good News Story”: Interestingly, Ms. Bullock framed the prospect of no further rate cuts as potentially “a good news story,” suggesting it could reflect households feeling more comfortable and starting to increase consumption as real incomes rise.

For mortgage holders who had been anticipating a fourth rate cut this year, the hold decision and the Governor’s commentary will be a disappointment.

The RBA’s current strategy remains focused on balancing the twin mandates of achieving price stability and maintaining full employment, meaning further rate relief is contingent on clear, sustained evidence that inflation is firmly back under control.