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The Reserve Bank of Australia (RBA) expects only limited scope for further rate cuts over the next year, with the minutes from November’s rate decision – released on Tuesday (18 November) – underscoring a careful and data-dependent approach as the board assesses persistent inflation pressures, a still-tight labour market, and uncertainty over how restrictive monetary policy remains.
In the minutes from the Monetary Policy Board meeting from 3–4 November, the RBA said that while inflation has fallen substantially since the peak in 2022 (as higher interest rates “have been working to bring aggregate demand and potential supply closer towards balance”), inflation has picked up more recently.
Indeed, the September quarter inflation figures show that trimmed mean inflation was “materially higher than expected”, with headline inflation rising given the cessation of electricity rebates in a number of states.
While the Monetary Policy Board believes that some of the increase in underlying inflation in the September quarter was due to “temporary factors” (and they do not expect quarterly inflation to be as strong in the December quarter as in the September quarter), the bank has revised up inflation projections.
The board also noted that market pricing used to condition the November forecasts implied no further cuts in the cash rate in 2025 and one further cut of 25 basis points by late 2026. More than half of market economists projected that there would be no further cuts in the cash rate in 2025 or 2026, according to the RBA.
Looking at future decisions, the board said there were three key considerations they would be looking at: “the implications of the recent rise in inflation; the outlook for the labour market; and whether monetary policy was still restrictive”.
On the stance of policy, the board acknowledged “tensions in the signals coming from various other indicators of the tightness of financial conditions”.
Overall, members judged conditions were “still slightly restrictive”, noting that scheduled mortgage payments remained historically high as a share of household disposable incomes, households were continuing to make extra mortgage payments into offset and redraw accounts at an above-average rate, and the ratio of household debt to household disposable income had continued to fall (when adjusted for offset balances).
They noted that financial conditions had eased because of the 75 bps of reduction in the cash rate this year and that there had been a contraction in bank lending spreads and risk premia in financial markets over a longer period.
The board said that the effects of the monetary policy easing earlier in the year were not yet apparent in the data on economic activity, however. Members observed that there were some tensions in the signals coming from various other indicators of the tightness of financial conditions.
However, the board also flagged that other indicators suggested that financial conditions could be “on the accommodative side”. These include the fact that risk premia in capital markets were low, funding was readily available, and the spread to the cash rate for both bank funding costs and lending rates was notably below pre-pandemic levels.
“These all implied that a given level of the cash rate was less restrictive than was the case a few years earlier, consistent with some estimates of the neutral interest rate having risen,” the minutes read.
As such, the board unanimously decided to leave the cash rate at 3.60 per cent and concluded it could “afford to be patient”, while key economic signals continue to unfold.
What would provoke the next move?
Looking ahead, the minutes detail scenarios that could keep the cash rate on hold – including stronger-than-expected demand, a larger-than-expected recovery in household spending, lower supply capacity, or a shift in the board’s assessment of restrictiveness.
“Any of these scenarios could limit the scope for further monetary easing, particularly with inflation having been above its target for much of the preceding few years,” the minutes noted.
However, members said further cuts may be required if the labour market weakened “materially” or if gross domestic product (GDP) growth undershot expectations due to more cautious household spending. In such cases, “excess capacity was likely to emerge and dampen inflationary pressures”, which the board said would mean it would be ”appropriate to ease monetary policy to keep inflation at target and the labour market around full employment”.
Nevertheless, members agreed that it was not yet possible to be confident about which of these scenarios was more likely.
They affirmed that it was appropriate in this environment for the board’s decisions to remain cautious.
Reacting to the release of the minutes, Belinda Allen, senior economist at the Commonwealth Bank of Australia (CBA), said the minutes reinforce that the path ahead hinges on the persistence of inflation and the evolving view of spare capacity.
“The upcoming inflation prints… will be the most crucial from here in determining the bias of the board,” she said and added that the new full monthly CPI series would “complicate the view”.
Allen highlighted the importance of the line in the minutes that notes that inflation would settle closer to the midpoint if rates are left unchanged: “This reinforces our view the cash rate will be kept on hold from here.”
The CBA economist also noted there was “no discussion of other options… apart from being on hold” and said scenarios such as stronger demand or reduced capacity “could also lead to the board lifting the degree of hawkish commentary in coming months”.
ANZ senior economist Adelaide Timbrell also described the minutes as “a little more hawkish than the post-meeting statement”, but said they are unlikely to shift market expectations.
ANZ believes there will be one final 25-bp cut in the first half of 2026.
Timbrell pointed to the board’s emphasised downside risks to capacity, upside risks to demand, and noted that household income and wealth could drive a “larger-than-expected recovery in household spending.”
On the possibility of further easing, she stressed the board’s concern that “employment growth in the market sector remains soft” if businesses become more cautious or cut costs and the risk that household spending could reduce.
Timbrell also highlighted the minutes’ assessment that financial conditions may no longer be restrictive, reflecting an important uncertainty feeding into the RBA’s cautious tone.
While the timing of the next move remains unclear, both economists agree the November minutes point to a central bank waiting for clearer evidence – particularly on inflation – before shifting its stance.
National Australia Bank (NAB) has also previously suggested that it believes Australia is at the end of this easing cycle, while Westpac thinks there is still “scope for additional policy easing driving a firmer medium-term growth path for demand”.
[Related: Major banks hedge bets on cash rate end point]