National Australia Bank (NAB) is banking on a hold.
The major bank's group chief economist Sally Auld said NAB is "cautiously optimistic" on its outlook for the Australian economy as 2026 approaches.
"We have a labor market that looks, give or take, looks pretty close to full employment," Auld said during a Forward View webinar, attended by Australian Broker. "And we have an economy that looks like it's going to get back to trend growth in 2026. So in terms of interest rates, what that probably means is the Reserve Bank of Australia (RBA) has scope to do a little bit more. But not a lot more."
The nation's central bank has slashed the official cash rate (OCR) three times in 2025 so far, most recently in August. However, the RBA opted to hold interest rates at 3.6% during its September meeting, citing higher-than-expected inflation and continued economic uncertainty as its main drivers.
While mortgage holders and investors have been holding out hope that the bank would once again cut rates – the fourth time in 2025 – at its upcoming November meeting on monetary policy, NAB's chief economist said the nation's central bank will probably hold off, likely until 2026's second quarter.
"If anything has changed in the last couple of weeks, it's that the inflation story is probably not as benign as we thought it might be," Auld said. "Parts of the inflation basket – like housing, and also like market services – run a little bit hotter than we had anticipated."
Wednesday's quarter consumer price index (CPI) confirmed that inflation is rising in Australia, dashing hopes of near-term rate cuts. Both headline CPI and annual trimmed mean inflation rose during the September quarter, according to the Australian Bureau of Statistics' (ABS) latest print.
For the year leading up to September, the CPI climbed to 3.2%, up from 2.1% in the 12 months leading up to June. Meanwhile, the trimmed mean annual inflation – which measures underlying inflation by stripping out goods with volatile prices changes and what many consider a better indicator of inflationary pressures – rose to 3% in September, up from 2.7% during the June reading.
This marks the first time in nearly three years – since December 2022 – that the trimmed mean annual inflation has risen. The rising inflationary figures are also outside of the RBA's target inflation range of 2% to 3%.
In September, RBA Governor Michele Bullock was firm that the RBA board has adopted a wait-and-see approach, indicating that future policy decisions will hinge on upcoming economic data. That would mean inflation and employment would have to remain at sustainable levels, including within the RBA's target inflationary range, before further monetary easing.
"We think that the reserve bank is going to be on hold for the next couple of quarters," Auld said. "From the Reserve Bank's perspective, they'll take a few more quarters to get a bit more comfortable in their understanding of what's driving inflation. And while they do that, they'll probably be a little bit more reluctant to take rates lower."
The RBA plans to meet on 3 and 4 November to discuss monetary policy.
