CBA flags risk of no more RBA rate cuts due to growth and inflation
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The news: Commonwealth Bank economists say upside risks from near-term growth and inflation could mean the RBA’s rate cut cycle is already over. Their base case, however, still sees the economy striking a middle path, allowing for one final rate cut in February 2026.
The bank is not expecting any rate cuts for the rest of 2025. Previously, the bank forecast the next cut would come in November but pushed back its rate cut expectation after the last rates decision.
The context: In the latest quarterly CommBank view, head of global economics and markets Luke Yeaman flagged that a steady decline in underlying inflation enabled three RBA cash rate cuts this year, but this trend appeared to “have flatlined in the September quarter”.
Weaker labour market and lower wage growth could drive underlying inflation to an annual rate of around 2.6% and then 2.5% by the end of 2025, enabling the central bank to cut the cash rate from 3.60% to 3.35% — near CBA's neutral rate estimate of 3.25% — in February 2026.
If this occurs, Yeaman said the bank expects a “relatively stable period, with economic growth settling around trend rates of about 2.25% and unemployment remaining around our estimate of full employment at about 4.3%”.
However, Yeaman stressed that there are a “range of possible scenarios” with near term upside risks on growth and inflation “meaning we may have already seen the final rate cut in this cycle”.
This scenario could eventuate if consumer confidence lifts from rising real incomes and stronger housing wealth, ramping up discretionary spending, and may be complemented by a rise in business investment.
The world economic outlook is expected by the bank to be “cyclically weak over the rest of 2025 but gradually recover in 2026” amid lower interest rates and US tax cuts.
But Yeaman warned that “of course, nothing can be taken for granted in this new, more volatile, economic era”. He said the threat to US Federal Reserve independence “is real”.
The bank’s central case is also for a “low-ambition trade” to be struck between the US and China in early 2026 with reciprocal tariffs to remain at around 40%, but is wary that “given the stakes, events could escalate quickly”.
He said that “tariffs and other restrictions ramped up again” and that “the risk of a damaging conflict in the South China Sea in coming years remains live and sits behind both countries’ economic strategies”.
Yeaman also expects tax policy reform to return to "hit the headlines again in 2026".
Rather than "big-bang" reform to GST or the corporate tax system, Yeaman thinks a "crackdown on family trusts, scaling back the capital gains tax discount and new road user charges on electric vehicles" is more likely.
The source: The CommBank View for September quarter 2025
