The Reserve Bank of Australia maintained its official cash rate at 4.35% following a unanimous board decision, holding rates steady after implementing three increases earlier in the year. Governor Michele Bullock indicated that rate hikes remain a possibility if inflationary pressures warrant action, despite softening housing values. Financial markets responded by increasing the probability of another rate increase by year’s end to 69%, up from 53% before the announcement.
The bank’s revised economic forecasts showed inflation declining faster than previously anticipated due to lower fuel prices, though the inflation rate is not expected to return to the 2.5% target until early 2028 even with modest rate increases. The RBA projected stronger job creation but higher unemployment reaching 4.7% by the end of 2027. Officials characterized the timeline for bringing inflation to target levels as reasonable given current economic conditions.
Housing market dynamics featured prominently in discussions, with the RBA acknowledging that property values have declined more substantially than expected in response to rate increases and government budget measures. New investor loan commitments fell by approximately 25% since the beginning of the year. However, Bullock emphasized that housing was not the primary consideration in the rate decision, noting that fewer than 1% of homeowners currently face negative equity despite recent price declines.
The central bank identified several other economic factors influencing monetary policy decisions, including strong labor market indicators, capacity constraints, artificial intelligence-related business investment, and geopolitical developments. Officials expressed concern that growing datacentre construction activity, while economically beneficial, could strain labor and material availability in other sectors including residential construction, potentially supporting elevated inflation before productivity gains materialize.
Treasurer Jim Chalmers welcomed the decision to hold rates, characterizing it as providing relief to mortgage holders amid global economic uncertainty. The RBA projected that a combination of falling interest rates and housing price recovery could support per capita economic growth by 2028.
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