RBA takes ‘giant leap’ into hawkish territory after ruling out rate cuts: CBA
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More news: Commonwealth Bank has described RBA governor Michele Bullock’s post-rate decision press conference as a “giant leap into the hawkish territory” after she “effectively” ruled out interest rate cuts in 2026.
Commonwealth Bank head of Australian economics Belinda Allen has flagged that Bullock’s tone was unlike the monetary board’s statement which “did not go as hawkish as some were expecting”.
In a research note, Allen highlighted Bullock’s comments that the board’s “discussion today was between a prolonged period of on hold or the possibility of higher rates next year” and added “the February meeting is ‘live’”.
She also noted that “markets have priced in rate hikes over next year as the risks have shifted in the past month given the flow of economic data”.
“We continue to see the cash rate on hold from here. But the press conference today has opened the door to a rate hike in 2026, possibly as early as February if Q4 CPI due 28/01 is large enough or if the components show more signs of persistent inflation,” Allen said.
Commonwealth Bank’s updated economic forecasts for 2026 and 2027 will be released next week.
State Street Investment Management APAC economist Krishna Bhimavarapu said the RBA’s statement “leaned more hawkish, as expected” but highlighted that “everything depends on data”.
“While we agree policy rates are likely to remain on hold for an extended period, we remain cautious about the market’s accelerating expectations for a hike—particularly as the U.S. Fed appears poised to cut rates tomorrow amid weakening labor market signals,” Bhimavarapu said.
Flat or up: RBA governor confirms no more cuts any time soon
More news: Reserve Bank governor Michele Bullock has refused to put any timing on potential rate moves or provide forward guidance but has indicated the next move will be flat or a rise. And she said there are no cuts on the horizon.
In response to questions at the post-monetary policy decision press conference, Bullock said that if inflation continues to be persistent and fails to come back towards the 2-3% target band, it “does raise questions … and the board might have to consider whether or not it’s appropriate to keep interest rates where they are or, in fact, at some point raise them”.
“But I wouldn’t put a timing on that. It’s going to be a meeting by meeting decision,” she said.
She emphasised the uncertainty in the data in terms of what is temporary versus persistent.
“What I would say at this point is what we know at the moment, I don’t think there are interest rate cuts on the horizon for the foreseeable future,” she said.
“The question is, is it just an extended hold from here or is it [the] possibility of a rate rise? I couldn’t put a probability on those, but I think they’re the two things that the board will be looking closely at,” she said.
Bullock said if the RBA lifts rates next year, it’s possible some could read it as having cut too much in 2025. But she noted the board had been cautious and a mere matter of months ago people were saying rates needed to be dropped a lot.
She said that “relative to six months ago, seven months ago, a lot of the downside risks seem to have abated a it an some of the upside risks seem to be being generated”.
Economists weigh the future of rates as RBA presents 'measured' tone
More news: Economists have had a mixed reaction to the Reserve Bank's monetary policy statement, where it kept rates on hold at 3.6% and pointed to rising risks for inflation but presented a measured tone.
KPMG chief economist Brendan Rynne said the likelihood of a further rate cut has "diminished". But he doubled down on there being an "opportunity ... to cut rates further in the first half of 2026".
"A lot will depend on how fiscal policy plays out over the coming months and whether the transition of demand away from public sector to the private sector continues," Rynne said in a statement.
Oxford Economics head of economic research and global trade Harry Murphy Cruise said the tone of the statement was "calmer than expected" and emphasised there could be temporary factors at play and the new monthly CPI series is still uncertain.
"Explaining away part of the inflation surge suggests the board is in no rush to hike," he said. Even so, he thinks the figures will rule out any rate cuts in 2026.
Deloitte Access Economics partner Stephen Smith said the statement was "measured" and "will temper the whiplash sentiment in markets", adding that rate rise sentiment is "premature".
"We expect the Bank to adopt a wait-and-see approach over the next few months until it can determine whether the current rate of economic growth is sustainable," he said. "The economy is still treading water, but the RBA’s fear is that if it does any better, it may re-ignite inflation."
IFM Investors chief economist Alex Joiner said in a post on X that the RBA wants to see "a further acceleration of inflation in the data before committing to a hike" and is citing uncertainty and temporary factors for choosing not to increase rates pre-emptively.
He says the tone doesn't get "more hawkish" than the central bank has been before.
ANZ economists also think the tone was somewhat less hawkish than markets were expecting, but noted the RBA is keeping its options open.
"We expect the cash rate to remain at 3.6% for an extended period," the bank's economists said in a note, reiterating its concerns the risks for a rate rise are increasing.
Reserve Bank keeps rates on hold at 3.6%
The news: The Reserve Bank of Australia has kept rates on hold at its final monetary policy meeting of 2025. This outcome was widely expected by the markets and most economists.
The Monetary Policy Board said that while recent data suggests risks to inflation "have tilted to the upside" and there is some indication of a “more broadly based pick-up in inflation” it is too early to judge how persistent it is.
The numbers: The decision to leave rates unchanged at 3.6% follows a turbulent few months. The latest data has unveiled strong GDP growth, a significant rise in monthly household spending and a high monthly CPI read of 3.8% in the 12 months to October.
The RBA has cut rates three times this cycle, down from a peak of 4.35%, with August marking the last 25 basis points of easing.
The context: While economists were aligned on the RBA being likely to stay on hold at its December meeting, there is less agreement in forecasts of the future trajectory of rates. Some economists, such as Westpac chief economist Luci Ellis, are anticipating more cuts, while many others expect a long period on hold followed by rate rises.
RBA governor Michele Bullock's 3:30pm AEDT press conference will be watched closely for signals as to whether the board is more hawkish in its tone. Last week, Bullock noted the current thinking was that elements of the higher inflation figures are "temporary".
What they said: "The recent data suggest the risks to inflation have tilted to the upside, but it will take a little longer to assess the persistence of inflationary pressures. Private demand is recovering," according to a statement from the Monetary Policy Board.
"Labour market conditions still appear a little tight but further modest easing is expected. The Board therefore judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve."
The sources: Reserve Bank monetary policy statement, Commonwealth Bank research
