The Reserve Bank of Australia left its main policy rate, the cash rate, on hold at 3.60 percent at its meeting today, in line with the consensus forecast. This rate was last adjusted in August when it was lowered by 25 basis points. The rate decision coincided with the publication of updated economic forecasts in the quarterly Statement on Monetary Policy.

In the statement accompanying today's decision, officials noted that inflation in recent months has been materially higher than they expected when the RBA's last set of economic forecasts were published in August. Although they consider some of that increase to be driven by temporary factors such as the expiry of government electricity rebates, they also expressed their concern that some inflationary pressure may remain in the economy. They also noted that private demand has exceeded expectations and cautioned that this strength, if it persists, could result in tighter labour maket conditions and increase the potential for firms to pass on cost increases.

Reflecting these considerations, officials concluded that it was appropriate to leave policy on hold today, advising that they remain cautious about the outlook. Today's decision was unanimous.

Today's decision that policy should remain on hold reflects the fact that officials are less confident about the inflation outlook. Headline inflation is now forecast to be 3.3 percent at end-2025 and 3.7 percent at mid-2026, up from the forecasts of 3.0 percent and 3.1 percent respectively made in August, while the end-2026 forecast revised up slightly from 2.9 percent to 3.2 percent. The forecast for the trimmed mean measure of inflation at end-2026 has increased slightly from 2.6 percent to 2.7 percent. The two measures of inflation are forecast to be at 2.7 percent and 2.6 percent respectively in mid-2027, up from 2.5 percent previously, and both are forecast to be 2.6 percent at end-2027.

Officials have also adjusted their growth forecasts. Australia's economy is now forecast to expand by 2.0 percent on the year in the three months to December 2025, up from 1.7 percent previously, and by 1.9 percent in the three months to December 2026, down from 2.1 percent previously.

After an upside surprise on inflation, the RBA stays on hold through year end. Markets look for rate cuts in the first half of 2026 as inflation recedes.

The Reserve bank of Australia (RBA) announces its monetary policy with regard to interest rates on the first Tuesday of each month with the exception of January when it is on vacation. The RBA is the central bank of Australia and its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system.

The Reserve Bank of Australia's (RBA's) main responsibility is monetary policy. Policy decisions are made by the Reserve Bank Board with the objective of achieving low and stable inflation over the medium term. Other responsibilities include maintaining financial system stability, while at the same time promoting the safety and efficiency of the payments system. The RBA regards appropriate monetary policy as a major factor contributing to the Australian dollar's stability, which in turn leads to full employment and the economic prosperity for Australia.

The RBA is unique among the central banks - it has two boards with complementary responsibilities. The Reserve Bank Board is responsible for monetary policy and overall financial system stability. The Payments System Board has specific responsibility for the safety and efficiency of the payments system.

The RBA sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.