Australia’s monetary policy remains on hold at 3.60%, marking the third consecutive decision without change. This steady stance follows a series of rate cuts from a peak of 4.10% in February 2025, reflecting the RBA’s cautious approach amid mixed economic signals. The decision aligns with the central bank’s inflation target of 2–3%, as headline inflation has moderated from 5.10% YoY in early 2025 to 3.80% in October. The broader economic environment is shaped by moderate GDP growth, subdued wage pressures, and external uncertainties including geopolitical tensions in the Indo-Pacific region.

Drivers this month

• Inflation easing to 3.80% YoY from 4.20% last quarter
• Unemployment steady at 3.70%, near historic lows
• Wage growth remains modest at 2.50% YoY
• Commodity prices volatile, impacting export revenues

Policy pulse

The RBA’s decision to maintain the cash rate at 3.60% reflects a balanced approach. Inflation is trending down but remains above the 2–3% target band. The pause allows the bank to assess the lagged effects of prior tightening, especially given the recent moderation in consumer spending and housing market activity.

Market lens

Immediate reaction: The Australian dollar (AUD/USD) dipped 0.15% in the first hour post-announcement, while 2-year government bond yields held steady near 3.65%. Breakeven inflation rates edged slightly lower, signaling tempered inflation expectations.

Core macroeconomic indicators underpin the RBA’s cautious stance. GDP growth for Q3 2025 came in at 2.30% annualized, down from 2.80% in Q2 but still above the 10-year average of 2.10%. Consumer price inflation has slowed from a peak of 5.10% YoY in February to 3.80% in October, driven by lower energy prices and easing shelter costs. The labor market remains tight, with unemployment steady at 3.70%, close to the historic low of 3.50% recorded in late 2024. Wage growth, however, remains subdued at 2.50% YoY, limiting upward inflation pressures.

Drivers this month

• Energy prices down 4.30% MoM, easing headline inflation
• Housing market cooling, with prices down 1.20% MoM
• Retail sales growth slowed to 0.30% MoM in October

Policy pulse

Inflation remains above the RBA’s target range but is clearly trending downward. The labor market’s tightness is balanced by weak wage growth, suggesting limited second-round inflation risks. The RBA’s neutral stance reflects this nuanced environment.

Market lens

Immediate reaction: Australian government bond yields held steady, reflecting market confidence in the RBA’s data-dependent approach. The AUD/USD’s slight dip suggests cautious positioning ahead of upcoming global economic data releases.

Comparing the current rate with historical data, the 3.60% level is still elevated relative to the pandemic-era low of 0.25% in April 2020 but significantly below the peak of 4.10% earlier this year. The pause in rate cuts suggests the RBA is monitoring the transmission of monetary policy to inflation and growth.

Drivers this month

• Inflation easing supports rate stability
• Labor market tightness balanced by weak wage growth
• Global commodity price volatility adds uncertainty

Policy pulse

The RBA’s steady rate reflects confidence that prior tightening is working, but the bank remains vigilant to inflation risks and external shocks.

Market lens

Immediate reaction: The AUD/USD’s slight decline and stable bond yields indicate market acceptance of the RBA’s cautious stance, with investors awaiting further data for directional cues.

Looking ahead, the RBA faces a complex environment. Inflation is trending down but remains above target. Wage growth is subdued, limiting inflationary pressures. External risks include geopolitical tensions in the Indo-Pacific and commodity price volatility, which could impact Australia’s trade balance and growth. Fiscal policy remains moderately expansionary, with the government running a small deficit of 1.20% of GDP in FY2025, supporting demand.

Drivers this month

• Geopolitical risks could disrupt trade and commodity flows
• Fiscal stimulus expected to remain supportive
• Global inflation trends and US Fed policy remain key external factors

Policy pulse

The RBA is likely to maintain a data-dependent approach. Should inflation continue to ease, the bank may hold rates steady or consider modest cuts in 2026. Conversely, persistent inflation or wage pressures could prompt further tightening.

Market lens

Immediate reaction: Market pricing currently assigns a 40% probability to a rate cut by mid-2026, with a 30% chance of a hike if inflation surprises on the upside.

Scenario probabilities:

• Bullish (30%): Inflation falls below 3%, prompting rate cuts to 3.25% by Q3 2026.
• Base (50%): Inflation stabilizes near 3.50%, rates remain at 3.60% through 2026.
• Bearish (20%): Inflation rebounds above 4%, leading to a rate hike to 3.85% by late 2026.

Australia’s interest rate decision to hold at 3.60% reflects a prudent balance between containing inflation and supporting growth. The RBA’s steady approach is justified by easing inflation, a tight but stable labor market, and external uncertainties. Fiscal policy remains mildly supportive, cushioning the economy against shocks. Market reactions have been muted, signaling confidence in the RBA’s data-driven strategy. However, risks from geopolitical tensions and commodity price swings warrant vigilance. Investors should monitor wage trends and global inflation signals closely as the RBA navigates the path ahead.

Key Markets Likely to React to Interest Rate Decision

The Reserve Bank of Australia’s interest rate decision influences several key markets. The Australian dollar (AUD/USD) typically reacts to shifts in monetary policy expectations, reflecting changes in yield differentials and risk sentiment. Australian government bonds (e.g., CGS) respond to rate outlooks and inflation data. Commodity-linked stocks such as BHP are sensitive to export demand and currency fluctuations. The US dollar index (USDJPY) also impacts AUD pairs through global risk appetite. Lastly, crypto assets like BTCUSD often reflect broader market sentiment shifts tied to interest rate changes.

FAQ

What is the current interest rate in Australia?

The RBA’s cash rate is 3.60% as of November 2025, unchanged since August.

How does the interest rate affect inflation?

Higher rates typically reduce inflation by slowing demand; the RBA’s current pause reflects easing inflation pressures.

What are the risks to Australia’s monetary policy outlook?

Key risks include geopolitical tensions, commodity price volatility, and unexpected wage growth increases.

Final takeaway: The RBA’s steady interest rate at 3.60% balances inflation control with growth support amid evolving domestic and global challenges, signaling a cautious but flexible policy path ahead.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.