The Reserve Bank has left the official interest rate on hold, as it warned house prices and rents will rise in 2026 after a surprise rebound in inflation.
The RBA’s monetary policy board on Tuesday unanimously voted to keep the cash rate at 3.6%, where it has sat since August.
The RBA board did not consider lowering interest rates on Tuesday and the bank’s governor, Michele Bullock, warned further cuts may stop inflation from falling.
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“If we ease [rates] much further, do we think inflation will continue to come down? … If you take our forecasts at face value, that’s a bit marginal,” Bullock told reporters.
“It’s possible that there’s no more rate cuts, it’s possible there’s some more … We are not wedded religiously to a particular path.”
Commonwealth Bank had already dropped its prediction of another cut in 2026 ahead of Tuesday’s decision, as had financial markets, with no rate cuts fully priced into trading.
The chief economist at EY, Cherelle Murphy, said: “There may be no more rate cuts … [and] the tone of today’s communications suggests that this has become a more likely scenario.”
Economists and banks overwhelmingly expected no change from the central bank after it cut interest rates three times in 2025, easing pressure on mortgage holders and fuelling rapid house price rises.
Core inflation rose to 3% – the top of the RBA’s preferred range – in September, the first acceleration of the underlying measure since 2022.
Inflation will surge much higher by mid-2026 – reaching a headline rate of 3.7%, and 3.2% by the bank’s preferred core measure – according to updated RBA forecasts accounting for September’s increase.
Rents, house prices and service fees are among the categories expected to rise faster than previously forecast.
Inflation had previously been expected to fall to 2.5% by 2027, the middle of the RBA’s target, but updated forecasts in the RBA’s statement on monetary policy showed this would no longer be achieved.
Bullock said the board would not be happy with that outcome but did not consider hiking rates as September’s inflation spike was expected to be temporary and fade by 2027.
Higher inflation meant real wages were expected to go backwards by the end of 2026.
Some of the inflation increase would persist as past rate cuts and rising consumer spending meant Australia’s economy was growing at close to its speed limit, stretching businesses and increasing pressure on prices, the statement read.
Bullock said the jobs market was still running hot as businesses struggled to find workers, dismissing a surprise jump in unemployment in September.
The federal treasurer, Jim Chalmers, said unemployment and inflation remained low but noted consumers and businesses may have welcomed another rate cut.
“Australians are still under pressure … [and] many Australians would have preferred to see more relief delivered today,” he said.
