Borrowers denied Cup Day rate cut in odds-on decision

THE Reserve Bank of Australia has held interest rates steady after a surprise surge in inflation potentially spelled the end of the cutting cycle.

Borrowers now face the possibility of the central bank’s next move being up rather than down, after the widely anticipated move on Tuesday.

The unanimous decision leaves the cash rate at 3.6 per cent after 75 basis points of easing since February.

Underlying or trimmed mean inflation, which is the Reserve Bank’s preferred measure, jumped one per cent in the September quarter, which was materially higher than the bank’s forecasts, governor Michele Bullock said in October.

Despite unemployment also rising to 4.5 per cent in September, money markets significantly lowered the odds for further rate reductions after last week’s consumer price index print.

Traders have less than one cut fully priced in by the middle of 2026 and some market economists, including those at Commonwealth Bank, have predicted borrowers have already seen their last rate cut this cycle.

In the RBA’s updated staff forecasts, published alongside the cash rate decision, underlying inflation was expected to remain at 3.2 per cent until at least the middle of 2026 – above the bank’s 2-3 per cent target band.

That’s up from the RBA’s most recent predictions in August that the trimmed mean would ease to 2.6 per cent by the end of this year.

Ms Bullock will provide further commentary on the bank’s outlook at her post-meeting press conference late Wednesday.

But at face value, the RBA’s forecasts preclude another cut for at least the next nine months, given it will be hard-pressed to lower interest rates with the trimmed mean above the band.