^{Photo: Realestate}

Australia’s central bank held its benchmark interest rate steady at 3.6% on Tuesday, signaling cautious optimism amid persistent inflation pressures. The Reserve Bank of Australia (RBA) emphasized that underlying inflation appears to be slowing, though certain sectors remain hot spots for price increases.

Inflation trends and RBA outlook

The country’s headline inflation reached 3% in August, the highest since July 2024, driven by rising housing, food, and alcohol costs. The RBA noted that while private demand is recovering, inflation may remain elevated in specific areas over the coming months.

RBA Governor Michelle Bullock highlighted the uncertainty in both domestic and international developments, stating that “the global environment is particularly unpredictable, but monetary policy is well placed to respond if international developments materially impact Australia’s economy.”

Recent monetary policy moves

So far this year, the RBA has reduced rates by 75 basis points, following a prolonged period at 4.35% since November 2023. Analysts see the decision to hold rates as a strategic pause, allowing policymakers to gauge the impact of earlier cuts on consumption, investment, and inflation.

Oxford Economics predicts that Australia’s core inflation, measured by the trimmed mean, could ease to 2.6% in the third quarter of 2025. This moderation may open the door for a potential rate cut in November, with further easing possible in early 2026 as inflation approaches the midpoint of the RBA’s 2–3% target band.

Economic growth and consumer activity

Strong economic performance provides room for the RBA’s cautious stance. Australia’s GDP grew 1.8% year-on-year in Q2, surpassing economist expectations of 1.6% and improving on the 1.3% growth of the previous quarter. On a quarterly basis, GDP expanded by 0.6%, slightly higher than the 0.5% forecast.

The Australian Bureau of Statistics reported that growth was largely driven by domestic spending, with household consumption and government expenditures supporting the economy. This strong momentum offers policymakers flexibility in balancing inflation control with growth support.

Market implications

Economists view the rate hold as a signal that the RBA is monitoring inflation carefully while remaining mindful of economic stability. Should core inflation continue to moderate, markets may anticipate further monetary easing, potentially supporting borrowing and investment in sectors such as housing and business development.

With inflation pressures concentrated in select categories, including housing and alcohol, the RBA is expected to continue using a data-driven approach to ensure that consumer price growth remains within target, without stifling the broader economic recovery.

Australia’s measured approach reflects a balancing act: keeping inflation in check while supporting an economy that has demonstrated resilience in both domestic consumption and GDP growth, even amid global uncertainties.