The Reserve Bank of Australia (RBA) maintained its official cash rate at 3.60% on November 4, 2025, matching market expectations and holding steady since August 2025. This decision follows a downward trend from a peak of 4.35% in late 2024, reflecting a cautious easing cycle amid moderating inflation and growth concerns. The pause signals the RBA’s intent to monitor economic responses before further adjustments.

Drivers this month

• Inflation eased to 3.20% YoY in Q3 2025, down from 3.80% in Q2, driven by lower energy and housing costs.
• GDP growth slowed to 1.10% QoQ in Q3, below the 1.50% average of the past year.
• Unemployment held steady at 3.80%, near historic lows but with signs of softening labor demand.

Policy pulse

The 3.60% rate remains above the RBA’s estimated neutral rate (~3.00%), indicating a mildly restrictive stance aimed at anchoring inflation near the 2–3% target band. This contrasts with the 4.35% peak in late 2024, marking a significant easing phase over the past 10 months.

Market lens

Financial markets reacted with muted volatility: the Australian dollar (AUD/USD) slipped 0.10% in the first hour post-decision, while 2-year government bond yields held steady near 3.70%. Breakeven inflation swaps for 5 years edged down 5 basis points, signaling tempered inflation expectations.

Core macroeconomic indicators underpin the RBA’s decision framework. Inflation, growth, employment, and wage dynamics have all shifted moderately over the past quarter, shaping the cautious policy stance.

Inflation trends

Consumer Price Index (CPI) inflation slowed to 3.20% YoY in Q3 2025, down from 3.80% in Q2 and well below the 4.50% peak in mid-2024. Key drivers include falling energy prices (-4.50% MoM) and easing shelter inflation (0.18 pp contribution, down from 0.35 pp previously). Core inflation remains sticky at 3.50%, reflecting wage pressures and service sector costs.

Growth and labor market

GDP growth moderated to 1.10% QoQ in Q3, below the 1.50% average over the past 12 months. Business investment contracted by 0.80% QoQ, while household consumption grew 0.90%. The unemployment rate held at 3.80%, near historic lows, but underemployment rose slightly, indicating some labor market slack.

Wage growth

Wage growth accelerated modestly to 3.90% YoY, up from 3.50% six months ago, sustaining inflationary pressures. This dynamic complicates the RBA’s inflation targeting, as wage-price spirals remain a risk.

Comparing the current print to the 12-month average, the RBA’s rate is 75 basis points lower, while inflation is down 1.30 percentage points and GDP growth is 0.40 percentage points slower. These trends highlight a slowing economy with easing price pressures.

Market lens

Immediate reaction: AUD/USD declined 0.10% post-decision, reflecting cautious sentiment amid unchanged rates. The 2-year bond yield stabilized near 3.70%, while inflation breakevens contracted slightly.

Looking ahead, the RBA’s policy path hinges on inflation persistence, growth momentum, and external risks. Three scenarios outline potential trajectories:

Bullish scenario (30% probability)

• Inflation falls below 3% sustainably by Q1 2026.
• GDP growth rebounds above 1.50% QoQ.
• RBA holds rates steady or cuts further by 25 basis points in early 2026.

Base scenario (50% probability)

• Inflation remains near 3.20%–3.50% through mid-2026.
• Growth stays moderate around 1.00% QoQ.
• RBA maintains current rates until late 2026, with possible minor adjustments.

Bearish scenario (20% probability)

• Inflation rebounds above 4% due to wage pressures or supply shocks.
• Growth stalls or contracts, unemployment rises above 4.50%.
• RBA resumes tightening, hiking rates by 25–50 basis points in 2026.

External risks

Geopolitical tensions in the Indo-Pacific and volatile commodity prices pose downside risks to growth and inflation. Fiscal policy remains mildly contractionary, with government budget deficits narrowing but limited stimulus expected.

The RBA’s November 2025 decision to hold rates at 3.60% reflects a cautious approach amid easing inflation and slowing growth. The pause follows a significant easing cycle from 4.35% in late 2024, balancing inflation control with growth support. Financial markets responded with muted moves, signaling confidence in the RBA’s data-driven stance.

Looking forward, the RBA faces a delicate balancing act. Wage growth and external shocks could reignite inflation, while subdued investment and global uncertainties weigh on growth. Policymakers will likely maintain flexibility, adjusting rates as new data emerges.

Investors and analysts should monitor inflation trends, labor market signals, and geopolitical developments closely. The RBA’s next moves will be critical for Australia’s economic trajectory in 2026.