RBA stands pat, economic assessment turns hawkish

Sally Auld | Group Chief Economist

Key points:

• In a unanimous decision, the RBA’s Monetary Policy Board left the cash rate on hold at 3.6% in September, as expected.
• The Statement was notable for its observations that private demand is “…recovering a little more rapidly than expected” and that “…inflation in the September quarter may be higher than expected at the time of the August Statement on Monetary Policy”.
• This appears to strike a different tone to the August Statement, reflecting the Board’s commitment in 2025 to be “attentive to the data and the evolving assessment of the outlook and risks…”
• We expect the RBA to be on hold through to May 2026, at which point we expect one further cash rate reduction of 25bp.

Bottom line

Heading into today’s meeting, the context could be broadly described as firstly, an economy which was broadly tracking the RBA’s forecasts, but with recent data described by the Governor last week as “slightly stronger” than expected. And secondly, an inflation outlook – at least for the third quarter – which now appears to look quite different to that anticipated by the RBA (and ourselves) just a week ago. So at least on the macro-economic front, one assumes the Monetary Policy Board had quite a bit to discuss.

This evolution was front and centre in the Statement today, with the key observations being that private demand is “…recovering a little more rapidly than expected” and that “…inflation in the September quarter may be higher than expected at the time of the August Statement on Monetary Policy”.

This sets up the November Statement on Monetary Policy as one in which there may be reasonably significant changes to the RBA’s forecast for near term GDP and inflation outcomes. If both of these move higher relative to the August baseline, then the RBA is likely to be on hold until well into 2026. Indeed, today’s Statement noted that with “…signs that private demand is recovering, indications that inflation may be persistent in some areas and labour market conditions overall remaining stable, the Board decided that it was appropriate to maintain the cash rate at its current level at this meeting.”

Detail

In August, the Statement accompanying the decision to cut rates contained four distinct sections. The first of these was headlined with the title “Inflation has continued to moderate.” In the September Statement, this was removed and replaced with the title “The decline in underlying inflation has slowed”. This is a strong message that the RBA’s narrative around core inflation has shifted in response to the signal in last week’s monthly inflation indicator.

The Statement notes the possible influence of financial conditions (rising asset prices and credit readily available to households and businesses) on household consumption, working to amplify the impact of growth in real disposable incomes on spending. House prices are rising and the local equity market is up 8.5% year-to-date.

The downside risks to the domestic outlook are characterised as emerging if “…households become more concerned about overseas developments.” The Statement characterises these developments are both geopolitical and trade policy related.

Commentary on the labour market acknowledges the modest slowing in employment growth of late, but that observation is somewhat neutralised by the comment that measures of labour utilisation remain at low rates.

Looking ahead, spending and labour market data – alongside the full quarterly CPI release – will be highly consequential for the policy outlook. For now, we expect the RBA to hold through to May 2026, at which point we expect a final 25bp reduction in the cash rate. But like the RBA, we are mindful of “…the heightened level of uncertainty about the outlook.” This is a reminder that we should be cognizant that the distribution of risks to our modal forecasts for the Australian economy and the RBA is wider than would usually be the case.

Unattributed votes

The Statement noted that today’s decision was unanimous.

This document has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB"). Any advice contained in this document has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice in this document, NAB recommends that you consider whether the advice is appropriate for your circumstances. NAB recommends that you obtain and consider the relevant Product Disclosure Statement or other disclosure document, before making any decision about a product including whether to acquire or to continue to hold it. Please Click Here to view our disclaimer and terms of use. Please Click Here to view our NAB Financial Services Guide.

All prices and analysis at 30 September 2025.  This information has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB").

The content is distributed by WealthHub Securities Limited (WSL) (ABN 83 089 718 249)(AFSL No. 230704). WSL is a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited (ABN 12 004 044 937)(AFSL No. 230686) (NAB). NAB doesn’t guarantee its subsidiaries’ obligations or performance, or the products or services its subsidiaries offer.  This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice.  Past performance is not a reliable indicator of future performance.  Any comments, suggestions or views presented do not reflect the views of WSL and/or NAB.  Subject to any terms implied by law and which cannot be excluded, neither WSL nor NAB shall be liable for any errors, omissions, defects or misrepresentations in the information or general advice including any third party sourced data (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the general advice or information. If any law prohibits the exclusion of such liability, WSL and NAB limit its liability to the re-supply of the information, provided that such limitation is permitted by law and is fair and reasonable. For more information, please click here.