RBA Holds at 3.60%
RBA Maintains Cash Rate at 3.60% Amid Unexpected Inflation Pick-Up
Sydney, November 4, 2025 — The Monetary Policy Board of the Reserve Bank of Australia (RBA) announced on November 4, 2025, a unanimous decision to leave the official cash rate unchanged at 3.60 per cent. This decision comes as the Board seeks to balance recent evidence of persistent inflation with a recovering domestic economy and uncertainties in the outlook.
Inflation Rises Above Expectations
While inflation has fallen substantially since its peak in 2022 due to the effectiveness of higher interest rates in balancing aggregate demand and supply, it has recently picked up.
Key inflation data for the September quarter of 2025 revealed concerning trends:
Trimmed mean inflation reached 1.0 per cent in the September quarter and 3.0 per cent over the year, rising from 2.7 per cent over the year in the June quarter. This figure was materially higher than expected at the time of the August Statement on Monetary Policy.
Headline inflation rose sharply to 3.2 per cent over the year in the September quarter. However, a large part of this sharp increase was anticipated due to the cessation of electricity rebates in several states.
The Board believes that some of the increase in underlying inflation during the September quarter was due to temporary factors. The central forecast in the November Statement on Monetary Policy projects underlying inflation to rise above 3 per cent in coming quarters before eventually settling at 2.6 per cent in 2027. This forecast is based on the technical assumption of one additional rate cut occurring in 2026.
Domestic Demand and Housing Strengthen
The RBA noted that domestic economic activity is recovering, although the outlook remains uncertain. Data on consumption suggests that the pick-up in private demand, which became evident in the June quarter, is continuing.
The housing market is also continuing to strengthen, signaling that previous interest rate reductions are beginning to have an effect. Specific indicators include:
Housing prices are rising.
Dwelling construction costs have started to increase again following a period of weak growth.
Credit remains readily available for both households and businesses.
Labour Market Remains Tight Despite Easing
Labour market conditions are assessed as remaining “a little tight,” notwithstanding a recent easing trend. Growth in employment has slowed slightly more than anticipated, and the unemployment rate rose to 4.5 per cent in September, up from 4.3 per cent in August.
However, other indicators suggest persistent tightness:
Measures of labour underutilisation remain at low rates.
Job vacancies are still at a high level.
Business surveys and liaison continue to suggest that a significant share of firms face difficulty sourcing labour.
In terms of costs, growth in unit labour costs remains high due to weak productivity growth, even as wages growth has eased from its peak (when accounting for quarterly volatility).
Rationale and Heightened Uncertainty
The decision to hold the cash rate was based on the fact that recent inflation data suggests some inflationary pressure may still remain in the economy. Given the recovery in private demand and the persistence of tight labour market conditions, the Board judged it appropriate to maintain the current cash rate level.
The Board noted that financial conditions have eased since the beginning of the year, but the full effects of earlier cash rate reductions will take time to materialize. The Board decided to remain cautious due to the recent evidence of more persistent inflation, opting to update its view as new data evolves.
Significant uncertainties present risks in both directions for the inflation and employment outlooks:
Domestic Risks: If the pick-up in private demand continues to exceed expectations, it could intensify capacity pressures, increase demand for labour, and make it easier for businesses to pass on cost increases. Conversely, the improvement in private demand might not persist.
Global Risks: Uncertainty remains high globally. While many forecasters have revised up near-term expectations for world growth, trade policy developments and broader geopolitical risks are still threats that could weigh on aggregate demand and potentially lead to weaker domestic labour market conditions.
The Board’s priority is its mandate to deliver price stability and full employment. It will pay close attention to the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market to guide its future decisions.