RBA holds interest rates at 3.6 per cent

In what’s being seen as a blow for hopeful property buyers and owners, the Reserve Bank of Australia (RBA) has kept the cash rate steady at 3.6 per cent, defying optimistic predictions of a quick fourth interest rate cut.

Instead, they’ll have to wait for the board’s next rate meeting in November, when most experts predict the next reduction will come – just in time for Christmas.

The decision has come as a major disappointment to many mortgage-holders struggling to meet payments at the current rate.

A new Finder survey found that 37 per cent of Australians – nearly two in five – are so cash-strapped they don’t have anywhere near enough savings to cover three months of living costs in the case of an emergency.

Dr Diaswati Mardiasmo, chief economist at PRD Real Estate says the expansion of the Home Guarantee Scheme from October 1 may have contributed to the RBA’s decision to hold the cash rate today.

“While the monthly consumer price index shows inflation rose to 3 per cent over the last 12 months, that’s still within the indicative range the bank wants,” she says. “And we have the Home Guarantee Scheme being expanded on October 1, allowing more people to buy their first home.

“That will be a stimulus to the lower price ranges of the housing market, and so a rate cut would be a double stimulus, which could be a bit risky. So keeping it the same is the safest option.”

As a result, the RBA board has plumped for a “steady as she goes” approach while keeping a close eye on that all-important figure – the inflation rate.

The latest Australian Bureau of Statistics (ABS) figures for August show the annual inflation rate rose from 2.8 per cent to 3 per cent, the highest since July last year.

“It’s just no surprise that they’re keeping the same rate,” Mardiasmo says.

“The RBA make the call based on quarterly data; they made their last cut in August on June inflation data, and the September quarterly data isn’t available yet.”

However, when that figure is seasonally adjusted to exclude volatile factors and holiday travel, the annual trimmed mean inflation figure was 2.6 per cent in August, which is down from July’s 2.7 per cent.

Other strands of the economy are also proving resilient, with the ABS reporting gross domestic product rising slightly by 0.6 per cent over the last quarter, and annual growth predicted at 1.3 per cent.

Seasonally adjusted unemployment has remained steady at 4.2 per cent, and employment increased minutely. At the same time, wage growth is slightly down from this time last year, falling from 4.1 per cent to 3.4 per cent.

“The RBA is very conservative and always waits for the quarterly data before making any decision to cut or lift rates,” said Housing Institute of Australia chief economist Tim Reardon.

“At the moment, there’s no clear evidence that inflation is continuing to contract and employment is still exceptionally high.

“So we’ll wait for the September quarter figures to come out, then we expect to see a rate cut in November. But the good thing is that the slower the RBA is to lower interest rates, the further away any later rises will be.”

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But most are confident that there is hope in sight, with a rate cut widely predicted for November.

EY Oceania chief economist Cherelle Murphy is also betting on a rate cut at the board’s next meeting, which will probably be the first of just two more rate reductions, she said.

“We have slow and steady inflation and unemployment rates, but central banks tend to make their decisions based on forecasts of what the economy is doing, rather than the situation today,” she says.

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“For the most part, everything they wanted is falling into place and they’re in no hurry to change things.

“The economy is OK, but it’s certainly not strong; the business sector [in particular] is showing signs of not picking up much at all.”

When things do improve, the RBA might then have to consider raising rates again, Murphy warns.

But there’s no guarantee that there will be two more rate cuts.

At the Commonwealth Bank, head of Australian economics Belinda Allen is expecting only one – next month in November – and then for the rate to stay steady through the board’s meeting in December and for the whole of 2026.

“We are feeling more confident in seeing the economy improve but there are still some challenges, like some softening coming through in the labour market,” she said.

“We’re still confident the November cut will come, but that it will be the last. As we get closer to the end of the rate-cutting cycle, we expect the RBA to be more cautious, so we expect the rate will be held and very stable after the next cut.”