Last updated: November 10th, 2025
After more than four years of hikes and holds, the RBA finally cut interest rates at its meeting in February, 2025.
It cut rates again in May and August, by 0.25% each time.
Monthly CPI Indicator data for August was higher than expected, making a September rate cut unviable.
And when the quarterly CPI came in hot in October, all bets were off. Unsurprisingly, the RBA decided to leave rates unchanged when it met on Melbourne Cup day, 4th November.
Opinions are divided on how many further cuts are likely in 2026. But my forecast below will help you predict the RBA’s next move.
| Key Takeaways: |
|---|
| RBA believes a recent uptick in the CPI will be temporary, but is concerned that inflationary pressures remain and noted heightened uncertainty. |
| Economists are divided, some say the cutting cycle has ended, others expect at least one additional cut in 2026. |
| Financial markets are not pricing in any further rate cuts before the end of 2026. |
| Persistent inflation and factors including labour market tightness, spending recovery, slow GDP growth and global volatility also pose upside risks. |
RBA Hit Pause On Delivering A Third Rate Cut.
The official RBA cash rate was lowered by 25 basis points to 3.60% in August 2025.
But the monthly CPI indicator rose to 3.0% in the 12 months to August.
Above: The monthly CPI indicator was within the target range in the first seven months of 2025.
That dashed any hope of a September cut, but odds were still 50-50 for further easing by the RBA in November.
That is, until the September quarter CPI results were released on 29th October, 2025.
It revealed a shocking 1.3% rise in prices over the quarter.
Important!
Headline inflation rose to 3.2% — outside the RBA’s target range. Trimmed mean annual inflation increased for the first time since December 2022.
(Related: Why Is The Cost Of Living In Australia So High?)
It reinforced the widespread view that an interest rate hold would be seen at the Board’s 3-4th November meeting.
And that’s what happened. The RBA said in its announcement of the November hold decision:
Nobody is expecting a cash rate cut when the Board meets for the final time between 8-9 December, 2025.
(Related: Best Cryptocurrency Exchanges In Australia.)
Some economists think one more cut is in store by mid-2026, bringing the terminal cash rate to 3.35%. Earlier in 2025, a number of pundits were predicting the rate would bottom out at 2.85%.
Paul Bloxham, HSBC’s chief economist for Australia, is forecasting no cuts in 2026, and a return to hikes in 2027.
(Related: Will Australia Go Into A Recession In 2025?)
Estimates of the ‘neutral’ cash rate — the level at which the economy is in equilibrium — vary depending on models used.
But in a recent speech, RBA Assistant Governor Christopher Kent said central estimates of the neutral rate had risen by around 1 percentage point on average:
Which is why, despite no further cuts, the RBA noted in its November Statement on Monetary Policy (SMP) that the current cash rate was now close to, or perhaps even below, the neutral rate.
The RBA has re-focused on inflation risks, which include:
- Temporary pressures arising from the removal of electricity rebates and jumps in volatile items like fuel.
- A more concerning lift in prices related to building new houses and services provided by firms.
Australia’s central bank knew inflation would track higher once power bill subsidies started expiring, but September’s CPI print came in “materially higher than expected.”
Given that only some of the increase in core inflation is temporary, the RBA’s forecasts for inflation have been revised up.
Above: Despite three cuts in 2025, which were passed on in full by major lenders, Australian housing affordability remains stretched due to elevated borrowing costs.
While the US economy has proven remarkably resilient, there are cracks that could split wide open.
The US Federal Reserve’s decision to hold rates for five meetings in a row to start 2025 reflected a wariness around the near-term effects of President Trump’s tariff policies.
Important!
Chair Jerome Powell admitted in July that the Fed would have cut interest rates in the US before now if it weren’t for the tariffs.
A softer-than-expected US jobs report in August led to a 25 basis point cut by the Fed in September. It cut again in October, bringing its policy rate to 3.75%-4%.
Powell said the labour market was cooling and inflation forecasts had risen, with higher tariffs pushing up prices is some categories of goods.
He warned there were “strong differing views” among the Fed board about the direction to take next.
US Treasury Secretary Scott Bessent said in November that “there are sectors of the economy that are in recession.” Trump-appointed Bessent was making the case for further rate cuts — something his boss has been loudly demanding all year.
A recent poll found most Americans think the country is in poor shape, and 61% believe Trump’s policies have worsened US economic conditions.
Did you Know?
Sentiment scans show Australian consumers have become more pessimistic compared to mid-year, rattled by recent inflation updates, which increased doubt about the path of interest rates.
5-Year Interest Rate Forecast For Australia.
The Australian economy is expected to stabilise at around 2% GDP growth - stronger private demand will be offset by a downward revision to public demand.
In its November SMP, the RBA said the likelihood of a severe downside scenario from higher tariffs had diminished.
- In May it had modelled multiple scenarios, one of which included an escalating trade war leading to heavy job losses and a recession.
Trade developments seem to be having little effect on consumer sentiment or business investment in Australia, and our exports have also been resilient.
Inflation, on the other hand, is expected to remain above target range throughout 2026. The latest RBA forecasts say:
- The trimmed mean will hit 3.2% by December, and not ease until the second half of 2026.
- Headline inflation is set to peak at 3.7% by mid-2026, compared to its previous estimate of 3.1%.
RBA Governor Michele Bullock was typically cagey when discussing the potential for further cuts at the press conference following the November board meeting:
Major Australian banks and economists differ in their views about the chances of any cash rate cuts in 2026.
Of the 35 economists and experts surveyed by Finder in October:
- 66% said we’ll see at least one cut in the next 12 months.
- 34% think a potential future cut might occur in February 2026.
AMP Chief Economist Shane Oliver said another cut next year was possible, as he thinks subsequent data will show lower inflation.
Lucy Ellis from Westpac said the bank also expects inflation to subside more quickly than the RBA forecast, with more slackness in the labour market — triggering two cuts in 2026.
Commbank predicts the cutting cycle has ended. Economist Harry Ottley from Commonwealth Bank said:
Current interest rate forecasts from Australian banks include:
| Q1 2026 | Q2 2026 | Q3 2026 | |
|---|---|---|---|
| Westpac | 3.60 | 3.35 | 3.10 |
| NAB | 3.60 | 3.35 | 3.35 |
| ING | 3.10 | 3.10 | 3.10 |
| CBA | 3.60 | 3.60 | 3.60 |
| ANZ | 3.35 | 3.35 | 3.35 |
Independent economist Warren Hogan said we shouldn’t underestimate how profound the inflation numbers were — he thinks the consumer spending recovery showing a cash rate of 3.6% is not restrictive.
Above: OECD's analysis of inflation in September found a sharp 3.1% rise in energy inflation. Energy prices either rose, or declined at a slower rate, across all G7 countries.
The OECD’s had forecast Australia’s cash rate falling to 3.3% by year-end 2025.
But an OECD analysis released 5th November shows Australia is not alone in ongoing inflation woes. It found 34 of the 38 OECD countries saw higher year-on-year energy prices in September.
A number of experts have previously said that hawkish monetary policy would continue to be needed as long as ‘real’ interest rates were in the negative.
Expert Tip.
“Real” interest rate is Australia’s cash rate adjusted for inflation. Subtracting CPI of 3.2 from the cash rate of 3.6 puts real interest at just 0.4%.
Christian Baylis, of Fortlake Asset Management, told the Australian Financial Review that not raising rates in line with higher inflation had implicitly stimulated the economy.
The Top 4 Economic Drivers Behind Rate Cuts.
The RBA describes the economic outlook as “uncertain”, and downside risks could emerge in 2026 that would see tightening back on the agenda.
Here’s what to watch:
1. Unemployment And Wages.
The seasonally adjusted unemployment rate rose to 4.5% in September 2025 — above what was forecast.
An expected uptick in productivity hasn’t eventuated, and the RBA pointed out that “growth in unit labour costs remains high.”
Above: Real incomes recently lifted after 18 months of sharp decline, driving increased consumption.
After the June jobless rate came in a bit hotter than expected, RBA Governor Michele Bullock said in a speech in July that unemployment numbers tend to “jump around”.
It's still a tight labour market, according the the RBA. But exactly how to judge labour market conditions is an area of uncertainty.
It’s attuned to the possibility of a sharper deterioration in jobless figures if economic activity doesn’t pick up as expected.
Important!
High employment levels can pressure employers to raise wages to compete, fuelling inflationary pressure without a sustainable lift in living standards.
ABS labour force data shows there was an increase of 34,000 unemployed people in September 2025, and a 15,000 increase in employed people.
The RBA’s November forecast predicts the unemployment rate will remain steady at around 4.4% through 2026.
Did You Know?
Full employment doesn’t mean 100% of Australians work. In fact, there’s no defined numerical target for what constitutes full employment. The RBA assesses the maximum level required to maintain stable inflation.
2. Consumer Sentiment And Behaviours.
The RBA has repeatedly warned of the dire consequences of not returning to target inflation levels quickly enough.
In particular, if high prices become entrenched in ordinary people’s day-to-day expectations, even higher interest rates could be needed to reduce inflation down the track.
Expert Tip.
For instance, rather than cutting back, a person might make a big purchase now to avoid the expectation of having to pay more in future.
The latest Westpac–Melbourne Institute Consumer Sentiment Index, in October 2025, suggests the consumer mood has declined to ‘pessimistic’ levels, largely due to inflation rising:
In particular, people’s optimism about their family finances nosedived by 10%, the weakest result in over a year.
Did You Know?
Homebuyer sentiment was largely unchanged, but people’s expectations of house price rises lifted by 2.1%, hitting a 15-year high.
3. GDP Growth.
A robust economy, supported by GDP growth, helps create a case for lowering interest rates.
The Australian economy’s growth has slowed down.
The latest National Accounts data from the ABS (for the June quarter 2025, released 3 September, 2025) shows the economy rose 0.6% from the previous quarter.
That represents an annual rise of 1.8%.
Above: Aggressive rate hikes have taken a toll, with the Australian economy cooling and bolstering the case for further rate cuts in mid 2025.
A recovery in consumer spending is forecast by the RBA, with rising house prices expected to fuel consumption and housing investment. Also, there less downside from global trade impacts.
However, public spending is expected to decline.
The RBA's November forecast is softer than what it forecast in August - 1.9% GDP growth to June 2026 (compared to 2.0% previously).
The outlook reflects:
- Easing financial conditions offsetting a diminishing boost to growth from a rise in real incomes.
- Modest growth in exports due to a minimal increase in mining output and stabilising foreign student numbers.
- Modest labour market tightness with a stable participation rate.
- Global trade impacts from US tariffs being mildly disinflationary, by reducing import prices.
- Slightly stronger than expected growth in China’s economy, with policy support to largely offset weak domestic demand.
The RBA thinks activity in the Chinese economy will remain resilient, revising up its GDP forecast to 5%:
4. Global Volatility.
Domestic factors are naturally impacted by major downturns, conflicts or catastrophes globally.
Especially if they have an outside impact on our terms of trade and the cost of imported goods.
A number of economic experts think Donald Trump’s return to the White House will be bad for Australia’s economy.
Our economy is especially exposed to the risk that the Chinese economy’s performance deteriorates further, given its stressed property market and high youth unemployment rate.
Supply-side, the price of fuel, food and other goods locally could rise further depending on conflicts in Ukraine and the Middle East.
Global Interest Rates: Turning Point Or Pause?
Here’s how our central bank’s policy rate compares to other major economies:
| Australia | US | England | Canada | EU | |
|---|---|---|---|---|---|
| Current | 3.60% | 3.75-4.00% | 4.00% | 2.25% | 2.00% |
| 1 Year Ago | 4.35% | 4.50-4.75% | 4.75% | 3.75% | 3.25% |
Of the major economies’ central banks, Canada’s was the first to begin monetary policy easing, cutting its cash rate by 25 basis points at its 5th June 2024 meeting.
The European Central Bank also dropped its interest rate in June 2024 - and has made seven additional cuts in the period to June 2025.
Important!
With UK inflation falling within the target range in May 2024, the Bank of England cut its cash rate by 25 basis points in August 2024 from a 16-year high. It cut a further 0.25% in November 2024, and again in February, May and August of 2025.
Bank of England’s chief economist, Huw Pill described the pace of rate cuts as “too rapid” following BoE’s May 2025 decision.
The rate was held at 4.0% in both September and November, with the BoE saying it judged that CPI inflation had peaked, and that if disinflation continued the rate would likely come down.
Hopes of a rate-cutting cycle beginning as early as March 2024 in the US were dashed due to four straight months of increasing inflation at the start of 2024.
The US Federal Reserve held rates for a ninth straight time at its meeting in August 2024.
An incredible sell-off across global stock markets was triggered as the data flagged the potential for a US recession.
Market losses were exacerbated by investors scrambling to exit carry trades and derivative positions in Japan after the yen appreciated in value - on the back of the Bank of Japan lifting interest rates to 0.25%.
There was talk of an inter-meeting rate cut to stave off the risk of recession.
Important!
That didn’t eventuate — but the Federal Reserve did deliver a whopping 50 basis point cut at its September 2024 meeting.
The Fed eased again in November and December 2024 by 0.25%, but Chair Jerome Powell said recently that easing was on pause, dependent on the data.
The Fed held again in March, May, June, and July 2025.
After enormous political pressure and worsening jobs data, cuts came in September and October of this year. That brought the US policy rate to 3.75%-4% — the lowest it has been in three years.
Chair Jerome Powell said, “We haven’t made a decision about December,” (when the board next meets).
Recent indicators the Fed will use to determine the need for future cuts include:
- A 0.3% increase in prices in September 2025, following a larger increase of 0.4% in August.
- An unemployment rate of 4.3% in August, with just 22,000 jobs added (compared to an expected 76,500).
- Rebounding GDP growth in the second quarter of 2025 (3.8%), after the economy contracted for the first time in three years in Q1 (-0.6%).
However, borrowing is still expensive and the world’s largest economy is facing turbulence arising from Donald Trump’s policies.
For instance, the potential for Trump’s proposed tariffs to fuel intractable US inflation — which has flow-on effects globally.
All Eyes On Rates — But Who Is Watching Fiscal Policy?
Monetary policy is not the only tool to combat inflation and, therefore, influence rates.
Important!
Fiscal policy is also vital - how the elected government intervenes to grow the economy or curtail/encourage consumption, such as through taxation, investments and initiatives.
Subsidies designed to ease cost-of-living pressures have been criticised as potentially encouraging spending, the same way stimulus cash does.
Former RBA board member Warwick McKibbin was quoted as stating:
The recent ABS National Accounts data shows that government spending contributed 0.2 percentage points to GDP growth, which was offset by a fall in public investment (-0.2ppt).
Rises in government expenditure were attributed to health programs through Medicare and the Pharmaceutical Benefits Scheme, expenses related to the federal election in May, and military exercises.
What Is RBA's Historical Monetary Policy?
Australia’s cash rate spiked to one of its highest points of 7.5% in 2008, at the height of the Global Financial Crisis.
More recently, amid uncertainty about the impact of the COVID-19 pandemic - which first became widespread within Australia in early 2020 - the cash rate was lowered to bolster the economy.
However, as inflation started picking up, the RBA moved to start normalising interest rates again.
The RBA Governor at the time, Philip Lowe, said:
In particular, Australia’s property market saw record-breaking price increases, and supply disruptions from the pandemic and the Russia-Ukraine conflict also reduced Aussies’ purchasing power. Inflation hit a 30-year high at the end of 2022, reaching 7.8%.
Important!
The RBA implemented an unprecedented 12 consecutive interest rate rises that kicked off in May 2022 after 16 months of the rate sitting at 0.10% since November 2020.
Prior to those hikes, interest rates hadn’t been over 4% for more than 11 years (since April 2012 when the rate was 4.25%).
The rate increase in November 2023 took the run of rises to 13.
The 4.35% rate didn’t change until February 2025 when easing inflation enabled a 25 basis point cut to be delivered, followed by two additional cuts in May and August.
Important!
In the 12 months to June 2025, inflation slowed to 2.1%, the lowest rate since March quarter 2021.
Final Thoughts On Australia’s Interest Rate Forecast.
There are too many variables and unknowns to reliably predict interest rates over the coming five years in Australia.
But the consensus among economists is that the easing cycle has stalled, with perhaps just one more cut in 2026.
The uncertainties “present risks in both directions” according to the RBA.
Warnings are still sounding in some circles about the need to fix broader economic issues (i.e. weak productivity) - and the fact Trump’s tariffs could trigger higher inflation that could bring rate hikes back into play.
What does it mean for your property purchasing or investment plans? Some would argue the best time to buy or invest is simply when you can afford it.
A best practice tip for anyone securing a home loan is to always budget for higher than the minimum repayments to allow for the inevitable changes in interest rates.
Jody
Nelson says:
I attempted to use the “hack” to dodge conversion fees, but sadly after converting AUD to USD on a Wise account, there doesn’t seem to be a way to deposit that money into eToro; i.e. eToro recently disabled Wire transfers and Wise doesn’t support SWIFT transfers for sending USD to a bank in the US?
John Keys says:
CMC Invest are an abysmal in turning around new accounts.
Over 1 month to setup up an account with an investment trust, and still waiting. I was promised 5 business days.
Reg Watson says:
Given that China’s economy is going down the toilet how the heck do we expect an appreciation of the Aussie in 2024 ? We are tied to China.
Regular citizen says:
Unless you can see into the future or time travel, try to refrain from predicting a stronger AUD. It’s now Dec 2025 and contrary to all you top earning ‘economists ‘, the AUD ain’t shit.