Summary
The Reserve Bank of Australia (RBA) held the cash rate steady at 3.6% during its October 2025
meeting. Governor Michele Bullock emphasized a cautious but optimistic outlook, citing signs of
recovery in consumption and labour markets. Inflation remains within the target band, though
pressures from services and housing persist. The RBA refrained from forward guidance, opting for a
data-dependent approach. Markets and government commentary have shifted expectations, with
fewer anticipating further rate cuts. The next policy decision will be informed by updated CPI data
and labour market indicators in November.
Monetary Policy Decision
The RBA’s decision to hold the cash rate at 3.6% reflects a balancing act between supporting
growth and containing inflation. The Board noted that previous rate cuts have begun to ease
financial conditions, but emphasized the lagged nature of monetary transmission. The exhibit 1
visually captures the recent rate trajectory and the current pause.
The RBA Board opted to keep the cash rate unchanged, marking the fourth consecutive meeting
without a rate hike. This decision follows three rate cuts earlier in 2025, which are beginning to
show effects, though the full impact is still unfolding due to policy lags.
Exhibit 1: Aust Cash Rate Target
Inflation Outlook
Inflation remains within the target band, but the RBA is closely monitoring services inflation and
housing costs. Governor Bullock highlighted that while inflation is not accelerating uncontrollably,
the elevated price levels are a concern.
While inflation remains within the 2–3% target band, recent data—particularly from market
services and housing—suggest upward pressure may be stronger than anticipated. The RBA
emphasized that price levels remain permanently elevated, and the focus is on slowing the rate of
increase, not reversing prices.
Labour Market Conditions
The labour market shows signs of tightness, with stable unemployment but persistent underutilization. Wage growth has moderated, yet unit labour costs remain elevated, suggesting sectored
imbalances. Employment growth has slowed, but the unemployment rate holds at 4.2%, indicating
a still-tight labour market. Wage pressures have eased slightly, though unit labour costs remain
high.
Consumption and Wealth EffectsHousehold consumption has rebounded, driven by rising real incomes and asset prices. The RBA
acknowledged the wealth effect from housing and superannuation, which is feeding into spending
behavior. Exhibit 2 shows trends in disposable income, consumption, and saving ratio.
The RBA acknowledged a rebound in household consumption, supported by rising real incomes and
asset prices. The wealth effect—from housing and superannuation gains—is contributing to
increase spending.
Exhibit 2: Household Income & Consumption
Forward Guidance and Policy Stance
Governor Bullock reiterated the RBA’s data-dependent approach, avoiding explicit forward
guidance. The Board considers policy to be slightly restrictive but appropriate given current
conditions. Governor Bullock refrained from offering explicit forward guidance, stressing a datadependent approach. The Board views policy as slightly restrictive, but not excessively so.
Government and Market Reactions
Market participants have recalibrated expectations, with fewer anticipating further rate cuts. The
RBA acknowledged stronger-than-expected inflation data as a key driver of this shift. While the RBA
did not directly reference government commentary, economists and markets have adjusted
expectations. Earlier forecasts of further rate cuts have been tempered by stronger-than-expected
inflation data.
Looking Ahead
The RBA will reassess conditions in November, incorporating new labour and inflation data. The
transition to full monthly CPI reporting will enhance policy responsiveness. The following exhibit
3offers insight into sectored drivers of economic momentum.
The RBA will reassess in November, with new data on labour markets, inflation, and forwardlooking indicators. The transition to a full monthly CPI from the ABS will also influence future
decisions.
