Markets were on edge Tuesday afternoon as the Reserve Bank of Australia (RBA) handed down its final monetary policy decision of the year.
In a largely expected move — despite a handful of hawkish outliers — the central bank kept the official cash rate (OCR) locked at 3.6%. The unanimous decision reflected the RBA's ongoing battle with stubborn underlying inflation.
That inflation — underscored by recent, hotter-than-expected consumer price index (CPI) readings — had already prompted some in the market to warn of possible rate hikes in 2026. And even with this pre-Christmas pause, concerns linger that rates could still edge higher in the New Year.
RBA Governor Michele Bullock offered little reassurance, telling reporters at Tuesday afternoon’s press conference that "we didn't consider the case for a rate cut at all" during the December meeting.
"We didn't explicitly consider the case for a rate rise at this meeting, but we did consider and discuss quite a lot, the circumstances and what might need to happen, if we were to decide that interest rates had to rise at some point next year," Bullock continued. "But certainly, there was no cut on the table [during this week's meeting]. No one suggested that there be a cut."
As for when a rate hike might occur, the governor said, "I wouldn't put a timing on that. It's going to be a meeting by meeting decision." She pointed out that the central bank will have the most recent quarterly CPI at the start of its February 2026 meeting.
But even without a rate increase, Tuesday’s pause did little to satisfy mortgage holders and investors, many of whom were craving relief as the nation’s cost-of-living squeeze intensifies.
Australian Broker rounded up market reactions from a few key industry players.
Chief executive officer of Mortgage Choice
"The Reserve Bank's decision to keep the cash rate on hold is a reaction to stickier-than-expected inflation. The October CPI data showed that the cost of goods and services continues to rise faster than the RBA’s target of 2% to 3%. Until inflation is firmly back in that target range, the RBA cannot responsibly lower interest rates.
"Interestingly, the unemployment rate dropped slightly to 4.3% [in October]. And while that’s great news for working Australians, a strong labour market will give the RBA confidence that the interest rates can stay higher for longer. For those looking to buy their first home or upgrade to their next, the cash rate staying on hold creates a window of stability."
Executive director at aggregator group Connective
"The hold today offers a degree of stability heading into 2026. But it does not change the higher-for-longer rate environment. Inflation remains sticky, and the RBA has not seen enough progress to shift its stance. Add to that, borrowers’ circumstances are becoming increasingly mixed: Some are comfortable, others are under pressure, and many are still waiting for relief that has not come yet.
“The labour market is softening without weakening materially, while a firm housing market continues to add to affordability pressures. As a result, mortgage stress, although lower than its peak, is still sitting above pre-hike conditions. Brokers are also seeing continued strong pre-approval activity as clients navigate tighter serviceability.
“Broker support remains critical for the coming months. The focus should be on proactive follow up on pre-approvals, scenario planning and helping clients assess whether rising property values create opportunities to restructure or upgrade.”
Head of Australian Economics at ANZ
"Looking forward, we expect the RBA board will remain data dependent given the high degree of uncertainty around the policy stance and the extent to which the recent lift in inflation may persist.
"Our views on the outlook for interest rates are unchanged given the nature of today’s post-meeting statement. We expect the cash rate to remain at 3.6% for an extended period. That said, in the wake of the Q3 national accounts and the October monthly CPI, the risks of a rate hike in the first half of 2026 is rising. Encouragingly, though, business survey-based measures of price and cost pressures are not moving higher, which gives us some confidence that inflation will ultimately trend lower over 2026."
Senior economist at REA Group
"With inflation currently stronger-than-anticipated, the board remains on a watchful pause. The RBA will need clear evidence that inflation pressures are easing once more before cutting rates again.
“Interest rates have moved 0.75 basis points lower this year, increasing borrowing capacities and improving sentiment. Combined, these factors drove this year’s reacceleration in home price growth. National home prices rose 0.5% in November and are now 8.7% higher than a year ago, the fastest annual growth since mid-2022. Momentum has firmed throughout 2025, but stretched affordability means growth remains well below the 20% to 30% annual gains seen in past booms.
“Earlier cuts and stronger confidence continue to support buyer demand, aided by population inflows and the expansion of the Home Guarantee Scheme. With new supply constrained, these factors will keep upward pressure on prices throughout summer. However, monthly growth eased in November across the capitals from October’s stronger pace. With interest rates now expected to remain on hold for an extended period, affordability constraints are likely to see price growth moderate throughout 2026.”
Chief executive officer at Mortgage and Finance Association of Australia (MFAA)
"Economists are warning that services inflation remains sticky, household spending is running hotter than expected, and the RBA is wary about moving prematurely."
But she added: "A rate hold doesn't mean a borrower should sit still. Brokers are expertly placed to review your loan, negotiate sharper pricing or explore alternatives. We’re seeing strong activity across the market and borrowers are looking for savings wherever they can find them. The expanded [Home] Deposit Scheme is also contributing to a surge in activity in the first home buyer segment and despite the steady rate environment, investor activity also remains strong.”
Chief economist at Ray White Group
"While broader economic momentum is softening, the RBA remains focused on services inflation, and in particular, housing costs, which are continuing to keep overall inflation elevated. The challenge for policymakers is that the most stubborn sources of inflation are now the least responsive to interest rate increases. Rents remain high due to a lack of rental housing. Construction costs are easing only gradually as labour and materials constraints continue to affect new housing delivery. This creates a policy paradox. Keeping rates high weighs on household spending and business investment, helping slow demand. But these same restrictive conditions are holding back residential construction and discouraging new rental supply, reinforcing the very housing inflation the RBA is trying to control.
"Rate cuts are still a possibility in 2026, however expectations have shifted further out. A move earlier in the year now looks unlikely, with any easing more realistically confined to the second half, once inflation shows durable progress back toward the target band. Australia’s housing market continues to be supported by strong fundamentals: rising population, persistent undersupply and constrained construction pipelines. Those conditions point to ongoing upward pressure on rents and prices, even as higher borrowing costs limit purchase capacity for some buyers."
Economic Director at Compare the Market
"A 0.25% rate cut would have reduced monthly repayments for someone with an average loan of $694,000 by around $103. Australians have been robbed of rate relief ahead of the busy holiday spending season, as the Reserve Bank clamps down again to fight inflation."
Chief executive officer of Banjo Loans
"There are pockets of the economy that are doing very well and pockets that are really struggling. It’s a multi-speed environment. Considering [small- and medium-sized enterprises], even the smallest rate increase could damage the slight improvement in SME confidence, which has only recently begun to recover. A lot of business owners have only just lifted their heads above the parapet. Until very recently, with this latest CPI data, there was an increase in consumer confidence as talk of further rate cuts continued. However, as the discussion has now changed to concern about the possible rate rises, the slight rise in confidence SMEs built up over the past year could disappear overnight. It will affect business expansion plans, investment in growth and the appetite for borrowing.
"It appears we are heading to a world where money is no longer as cheap as it was for the past decade. There will be pockets of optimism and stretches of pessimism. SMEs will remain cautious. The golden period of easy growth is behind us for now. If we do see rate rises, I expect them to be small and measured to avoid shocking the economy.”
Head of business and industry economics at Westpac
"We do not expect the economy to hit a hard capacity any time soon. The economy can grow faster without triggering further inflation, reducing the need for slightly restrictive policy. We expect core inflation to ease back toward, and eventually below, the mid-point of the target band by the end of 2026. Our current baseline is for two more 25 basis point rate cuts. But not until mid-2026."
Fenner added, however, that "following Governor Bullock’s comments in [Tuesday's] press conference, the probability of a rate hike has risen. This would be dependent on persistence of the current reacceleration in inflation. Instead, we see the risks as being more tilted to a prolonged pause. The evolution of the data over the coming months will see the RBA reassess the sustainability of inflation moving back to target and the restrictiveness of current policy settings."
