The Reserve Bank of Australia (RBA) held the cash rate steady and signalled policy is now “close to neutral”, but economists warn lingering inflation pressures in services and housing mean the fight against price growth is far from over.
Following the November meeting, the RBA confirmed the cash rate remains at 3.6 per cent, saying financial conditions now appear “pretty close to neutral”.
The board again voted unanimously, and governor Michele Bullock stressed there is no preset bias, with decisions to be made meeting-by-meeting.
Judo Bank chief economic adviser Warren Hogan and economist Matthew De Pasquale said the central bank sees inflation gradually easing back into target over FY27, helped by one-off price pressures such as council rates fading.
But they noted policymakers are not yet convinced inflation is fully tamed.
“The big concern for the RBA remains the market services and housing components of the CPI and whether they reflect a genuine rebound in demand above supply capacity in the economy,” they said.
They added the bank’s latest forecasts show “slightly more capacity pressure in the economy than previously thought”, raising the possibility inflation stays sticky into next year.
While the labour market has loosened modestly, the RBA continues to describe conditions as “a little tight”.
Hogan and De Pasquale said unemployment is expected to hover around 4.4 per cent through to late 2027, with only a shallow moderation in labour demand evident across job adverts and surveys.
“Our view remains that the cash rate is likely to stay at 3.6 per cent for some time yet,” they said, warning that strong consumer momentum could prompt a hawkish shift should inflation exceed forecasts again.
Westpac chief economist Luci Ellis agreed the bank is cautious amid evidence of “more persistent inflation”, even as it holds the line that underlying price pressures are likely to moderate.
She said the RBA sees policy as “closer to neutral estimates” and expects the trimmed mean to return close to the mid-point of the two-to-three per cent target range by mid-2027.
Ellis noted the unemployment outlook remains “stable”, but said capacity pressures are unlikely to ease significantly unless activity slows more than currently assumed.
She added that the board will stay patient until inflation clearly moves lower or labour conditions soften materially: “The stance of policy was seen as ‘pretty close to neutral’, though the closer you are to that point, the harder it is to gauge what side of a very fuzzy line you are on.”
Indeed, the shift to full monthly CPI reporting from the ABS next month will add further complexity.
The central bank plans to lean on its preferred quarterly trimmed mean measure during an 18-month transition period, acknowledging the monthly data will carry noise and require additional judgement.
The next major test arrives with December-quarter inflation, which economists say must show clear moderation to keep the RBA on hold.
While rate cuts remain possible later in 2026, analysts caution that any renewed strength in services inflation or demand could see policy tighten rather than ease.
