Summary:
The RBA held the cash rate steady at 3.6% on Tuesday, projecting inflation will not fall back within its 2–3% target range until after mid-2026. While the Bank noted some inflation drivers were temporary, Bullock’s remarks confirmed that policymakers did not discuss rate cuts, prompting markets to sharply reprice expectations. For the first time in over a year, bond futures no longer fully price in a cut this cycle. The probability of a May 2026 rate cut has fallen to 69%, down from full confidence in a February move just last week.
Reserve Bank of Australia (RBA) governor Michele Bullock signalled that the current interest rate cutting cycle may be over, as the central bank now expects inflation to remain above its 2–3% target range until the second half of 2026. The RBA held the cash rate at 3.6% in November, describing the current level as “close to neutral,” and suggested that future moves could go either way depending on data trends.
Bullock acknowledged that the RBA was surprised by the September quarter’s stronger-than-expected inflation reading, with underlying inflation reaching 3%. She said the board is now more focused on bringing inflation back within the target range than on protecting employment, though both remain core parts of its mandate. The central bank expects headline inflation to peak at 3.7% in the year to June 2026 as energy rebates roll off, before moderating to 2.6% by mid-2027. In the meantime, real wages are projected to decline through 2026 before recovering the following year.
While Bullock attributed part of the inflation surge to one-off factors such as higher travel, fuel, and council rates, she warned that persistent cost pressures—particularly in housing construction and hospitality—remain concerning. Markets have scaled back expectations for rate cuts, pricing in only a 70% chance of a reduction by mid-2026. Economists, including NAB’s Sally Auld and EY’s Cherelle Murphy, suggested that only compelling evidence of a sharp economic slowdown would prompt policy easing, with both viewing the tone of Bullock’s comments as hawkish.
Figure 1: Market Expectation on Cash Rate
CASH ACCOUNT
Product Interest
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