Economists and markets alike have pencilled in their bets for the last monetary policy decision of the year.
A run of unfavourable data for the Reserve Bank of Australia (RBA) during the second half of 2025 has dashed any hopes of another interest rate cut for the central bank’s final monetary policy meeting of the year.
The RBA kicked off the year delivering the very first rate cut since November 2020 during the February meeting followed by a somewhat staggered easing cycle with cuts occurring in May and August, primarily due to encouraging inflation and economic data.
With the cash rate now sitting at 3.6 per cent, analysts have speculated that this is the terminal point of the easing cycle and predict that the central bank will maintain this cash rate for the foreseeable future.
In the lead up to tomorrow’s decision, three out of four of Australia’s major banks have declared an end to the easing cycle following stronger-than-expected inflation and a softer September quarter GDP print, with Westpac being the only expectation, still expecting a cut in May and August 2026.
ANZ most recently shifted their call, with head of Australian economics Adam Boyton citing recent inflation pressures, GDP and resilient employment figures.
“Given that the RBA started easing with a tight labour market and the economy already
feeling the benefits of the Stage 3 tax cuts, this was always going to be a relatively shallow
easing cycle.
“The resilience of the global economy to the US tariff announcements and their
subsequent amendments removed a large source of downside risk,” he said.
Although Boyton views the recent uptick in inflation as “temporary”, he warned that persistent pressures in the CPI, GDP returning around the RBA’s estimates and a perceived-to-be strong labour market will make the RBA cautious about further easing.
While some market commentators have argued that the RBA may resume its rate hiking cycle next year, Boyton stated that a higher unemployment rate and mixed demand indicators would make this scenario difficult to justify for the RBA.
“That leaves us forecasting the RBA to be on an extended hold with the cash rate at 3.60 per cent – a rate relatively close to neutral, with a labour market that is, in our view, close to balanced, and GDP growth around potential,” he said. “That’s an unusual end for an easing cycle.“
“Typically, easing cycles end with the cash rate at a stimulatory level and some slack still in the
economy. That in turn enables a period of above potential growth which eventually needs to
be tempered by higher rates.”
Nevertheless, there are plausible cases for both a hike and another cut.
A hike could be triggered if trimmed mean inflation stays above target and unemployment remains steady, signalling the economy is running above potential, according to Boyton.
Conversely, if no further cuts coincide with a softer labour market, weaker real income growth and subdued consumer demand, the board may eventually allow the economy to grow faster—especially if global softness pushes other central banks to ease through 2026.
