RBA expected to hold rates – but could a rate increase be on the horizon?
All eyes are on the Reserve Bank of Australia (RBA) Monday as the nation’s central bank kicks off its final meeting on monetary policy for 2025.
Market players are largely expecting the RBA to hold the official cash rate (OCR) at 3.6%, amid mounting inflationary pressures across the nation.
“There is absolutely zero chance of a move by the RBA at this month’s meeting,” said Simon Bednar, chief executive officer of aggregator group Finsure, which falls under the MA Financial Group umbrella.
Bednar isn’t alone in his outlook. Elsewhere in the market, industry players are expecting a hold — but bracing for a possible rate hike.
“I don’t think we’ll get a cut. But I’m not sure if it will be a hold or an increase. But definitely not a rate cut,” Darren Liu, founder and managing director at Sydney-based non-bank FinStreet, told Australian Broker. “There’s too much inflation, uncertainty. There’s a lot going on. You can see the bank is really cutting up.”
Some of Australia’s Big Four banks have expressed similar views.
National Australia Bank (NAB) economists, for instance, also anticipate a hold, while leaving the door open for potential rate hikes in 2026.
“I am pretty comfortable telling you that I think the rate cut cycle is over and that maybe what we should start to watch for is, and start to possibly plan for, the possibility that rates go up next year,” said Sally Auld, chief economist at NAB, during a November webinar.
Bednar shared a similar outlook. “Headwinds into 2026 mean it is questionable if we’ll see any relief in the near future,” he said. “I have concerns that there could be possibly two hikes in the New Year, which is unfortunate.”
But not everyone is convinced the RBA will deliver a rate hike on Tuesday.
“I wouldn’t say that the probability of [rate increases] is zero, but I think it is still very low,” said Hobart-based economist Saul Eslake. “I think the issue is more, will the Reserve Bank cut rates again? And that’s looking diminishingly less likely.
“If the rise in inflation over the past few months represents the beginning of a new upward cycle in inflation, then probably the right thing for any central bank to do would be to start raising rates again,” he added. “But I think you would need a lot more evidence to support that claim than what is available at the moment.”
The September consumer price index (CPI) revealed that both headline CPI and the annual trimmed mean inflation rates are rising Down Under. Headline CPI edged up to 3.2%, for the year leading up to September, compared with 2.1% during the June quarter. Trimmed mean annual inflation rose to 3% in September, up from 2.7% during the June reading. Both figures are outside of the RBA’s target inflation range of 2% to 3%.
October’s monthly CPI reading didn’t provide much relief. Headline CPI rose 3.8% in the 12 months leading up to October 2025, up from 3.6% in September. The trimmed mean monthly inflation rate was 3.3% during the same time period, up from 3.2% in September.
That’s bad news for mortgage holders, many of whom are already grappling with rising living costs and had hoped for some relief from the RBA.
ANZ — which had previously expected a hold in December, but was anticipating another cut in early 2026 — updated its forecast earlier this month.
“We no longer see one final rate cut from the RBA in the first half of 2026, given recent inflation pressures,” said Adam Boyton, ANZ’s head of Australian economics. “With growth around potential, the activity case for further easing is also less clear.”
Commonwealth Bank (CBA) and Westpac are also expecting the RBA to hold on Tuesday.
Luci Ellis, chief economist at Westpac Group, wrote in a note: “The RBA is aware that some of the recent pick-up in inflation is temporary, but will be cautious given their view of potential output growth. It will therefore remain emphatically on hold this month and for much of next year.”
