All eyes are on interest rates, following the release of the Reserve Bank of Australia's (RBA) latest meeting minutes.
In a widely-expected move, the nation's central bank held the official cash rate (OCR) at 3.60% during its November meeting. Now, many lenders — including some of Australia's Big Four banks — have said rates are likely on hold steady until 2026. At the same time, some market players are starting to wonder if rates could move in the other direction.
"Some of the talk in the market is definitely shifting around the possibility of potential rate hike. But we think it's probably a bit too soon," Madeline Dunk, an economist at ANZ, told Australian Broker. "I think we're still a long way from that. You'd have to see quite a few things to see the RBA consider hiking."
That includes falling unemployment in an already tight labor market, rising job advertisements, a strong holiday spending season and inflation running hotter than the RBA had expected.
"So you'd need quite a few things," Dunk said. "You'd need to have a really strong Black Friday spending season and it would need to be harder for businesses to hire."
But Australia's jobless rate eased to 4.3% in October, down from 4.5% the month before. The RBA signaled that future interest rate decisions will hinge on the strength of the jobs market. It described the labor market as “a little tight,” or that there aren’t quite enough workers to meet demand, but noted that employment is likely to grow in the months ahead.
Dunk, however, noted that the "labour market is loosening. We did have that data [in the recent jobs report] that was better than people expected. But even still, if you look at the trend in the unemployment rate, it's been trending higher the last year or so. And if you look at forward indicators, they suggest that there's more loosening to come in the labour market."
Additionally, the recently-released RBA minutes acknowledged "a mixed picture" of current financial markets. Overall, the board sees conditions in Australia as still slightly restrictive, exerting a cool effect on the economy and making borrowing costs relatively high.
That's bad news for mortgage holders, businesses and investors seeking credit. Caution among borrowers could weigh on the economy, while banks may become more reluctant to lend, making it harder for individuals and companies to access funds. Businesses could also struggle to raise capital, and consumers may feel the pinch, reducing their spending.
In a note, Adelaide Timbrella, senior economist at ANZ, called the minutes "a little bit more hawkish than the post-meeting statement.". Still, ANZ anticipates the RBA will cut rates by 25 basis points in the first half of 2026.
In its minutes, the RBA outlined the case both for and against further rate cuts. Arguments in favor of easing include a stronger-than-expected global economy, rising household incomes driving higher spending and rates remaining lower than a year ago. So far in 2025, the RBA has trimmed rates three times: in February, May and August.
However, the central bank also said it would cut rates if there was reduced consumer spending and weakness in the jobs market.
"Black Friday is going to be super interesting, because I imagine that a lot of consumers have been holding off and not making purchases until Black Friday," Dunk said. "But now that we do have this discussion around the RBA potentially being on hold longer than people were expecting — no rate cut coming through in November — a lot of people who had previously been expecting cuts are holding off. I wonder whether that will dampen consumer spending in the pre-Christmas period. That's going to be quite interesting to watch out for. It will be a bit of a litmus test to see."
Meanwhile, inflation continues to trend upwards Down Under. In the September quarterly consumer price index (CPI), both headline inflation and trimmed mean were elevated. The consumer price index (CPI) rose 1.3% in the three months leading up to September, compared with June's quarterly reading of an increase of just 0.7%. For the year leading up to September, the CPI climbed to 3.2%, up from 2.1% in June. Trimmed mean annual inflation rose to 3% in September, up from 2.7% during the June reading. Both figures were outside of the RBA's target inflation range of 2% to 3%.
But Dunk said these figures are likely isolated events.
"A lot of people are quite concerned, given that we had that stronger-than-expected Q3 inflation data. But we think a lot of the things in the report were one-offs; like property rates, tobacco, some of the administered prices. A lot of these things uncharacteristically came together in Q3 to bump up the results," the economist explained. "A lot of the data in there is quite volatile. So we don't expect to see another print like that."
ANZ is anticipating a 0.7% increase in trimmed mean during the next reading, compared with the RBA's 0.8% forecasted quarterly increase.
