RBA Plays it Safe as Inflation Sends a Warning Shot

The Reserve Bank of Australia kept the cash rate unchanged at 3.6% in its final policy meeting of 2025, delivering a third consecutive hold and matching market expectations.

Borrowing costs remain at their lowest level since April 2023, reflecting a central bank that sees progress on inflation but is not yet convinced the threat has fully subsided.

Inflation Eases, but New Pressures Emerge

The RBA noted that inflation has fallen sharply from its 2022 peak, yet recent data show a mild upturn that requires close attention. Officials cautioned that although part of this rise may prove temporary, early signs point to broader and potentially more persistent price pressures. This shift in tone underscores growing concern that inflation could become more difficult to contain if underlying demand stays firm.

Labour Market Tightness with Cost Pressures

Australia’s labour market was described as “a little tight.” Unemployment has edged higher, and job creation has slowed, but overall labour underutilization remains low. Many firms continue to struggle to secure skilled workers, an imbalance that could keep wage and price pressures elevated unless demand tapers further.

Economy Clouded by Domestic and Global Suspense

The RBA emphasized several uncertainties shaping the months ahead. Domestically, policymakers are still assessing how restrictive current rate settings actually are. Globally, shifting trade conditions and geopolitical tensions continue to influence Australia’s inflation and growth dynamics. The central bank also warned that strong private sector activity could strain capacity if it carries into 2026.

A Strategic Pause Before 2026 Begins

With signals pointing in different directions, the board opted for caution. Leaving rates unchanged gives the RBA room to evaluate incoming data early in 2026 before altering its stance. Policymakers reiterated that they remain ready to adjust settings if inflation moves away from target, aiming to preserve stability as the economy transitions into the new year.